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Southwest Gas’ (SWX) CEO John Hester Discusses Q2 2015 Results – Earnings Call Transcript

Southwest Gas Corporation (NYSE: SWX ) Q2 2015 Earnings Conference Call August 6, 2015 13:00 ET Executives Ken Kenny – Vice President, Finance and Treasurer John Hester – President and Chief Executive Officer Roy Centrella – Senior Vice President and Chief Financial Officer Justin Brown – Vice President, Regulation and Public Affairs Analysts Matt Tucker – KeyBanc Capital John Hanson – Praesidis Operator Good day, ladies and gentlemen and welcome to the Southwest Gas 2015 Midyear Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s conference is being recorded. I would like to turn today’s conference call to Mr. Ken Kenny, Vice President of Finance and Treasury. You may begin. Ken Kenny Thank you, Kevin. Welcome to Southwest Gas Corporation’s 2015 midyear conference call. As Kevin stated, my name is Ken Kenny and I am Vice President, Finance and Treasurer. Our conference call is being broadcast live over the Internet. For those of you who would like to access the webcast, please visit our website at www.swgas.com and click on the Conference Call link. We have slides on the Internet, which can be accessed to follow our presentation. Today, we have Mr. John P. Hester, Southwest President and Chief Executive Officer; Mr. Roy R. Centrella, Senior Vice President and Chief Financial Officer; and Mr. Justin L. Brown, Vice President, Regulation and Public Affairs and other members of senior management to provide a brief overview of the company’s operations and earnings ended June 30, 2015 and an outlook for the remainder of 2015. Our general practice is not to provide earnings projections. Therefore, no attempt will be made to project earnings for 2015. Rather, the company will address those factors that may impact the company’s year’s earnings. Further, our lawyers have asked me to remind you that some of the information that will be discussed contains forward-looking statements. These statements are based on management’s assumptions, which may or may not come true and you should refer to the language in the press release, Page 2 of our presentation, and also our SEC filings for a description of the factors that may cause actual results to differ from our forward-looking statements. All forward-looking statements are made as of today and we assume no obligation to update any such statements. With that said, I would like to turn the time over to John. John Hester Thanks, Ken. Moving to Slide 3, I would like to summarize some of the highlights of the second quarter. First of all, on the natural gas side of the business, we had 28,000 net new customers in the past year. As we have previously projected, this represents an annualized growth rate of approximately 1.5%. Last month, we commenced construction on our $35 million Paiute Pipeline lateral, which will interconnect with Ruby Pipeline. We expect these facilities to the completed and in service in November of this year. We also submitted a request to the Public Utilities Commission of Nevada for authority to replace $43.5 million of older vintage plastic and steel pipeline next year. All three of these developments are indicative of the positive growth that we are continuing to experience on the regulated utility side of our business. At our unregulated construction services business segment, our effort to fully integrate the Link-Line Group of Companies that we acquired in October of last year continues to progress. We experienced strong revenue growth both organically and from the acquired companies in the past quarter. As we have indicated in previous disclosures over the past year, we continue to believe that we are on pace to reach $950 million to $1 billion in construction services revenues by year end. And with our peak construction season ahead of us, we expect a strong third and fourth quarter that we think will culminate in the construction services group achieving its previously announced 2015 goals. We did increase our loss reserve associated with the Canadian industrial project this quarter by another $2 million and we are currently in negotiations with our customer over change orders. We believe that we are in a very strong position in the ongoing negotiations and that our efforts will result in a substantial mitigation of the current loss reserve. This particular project is essentially complete and we remain very enthusiastic about the construction services segment, including the businesses we acquired this past October. Turning to Slide 4, for today’s call, Roy Centrella will provide an overview on our consolidated earnings as well as separate detail for the regulated natural gas and Centuri Construction Group segments. Justin Brown will provide a recap on the activities that we have been undertaking on the regulatory front and I will wrap up with a report on customer growth, our capital expenditure expectations and an update on our outlook for 2015. With that, I will now turn the call over to Roy. Roy Centrella Thank you, John. As noted, I am going to spend some time reviewing second quarter and 12-month financial results of both the natural gas and construction services segments. I will also highlight some of the key factors impacting the changes between the related periods and potentially influencing full year 2015 results. We will start on Slide 5. Net income for the three months ended June 2015 was $4.9 million, or $0.11 per basic share, down from the $9.6 million, or $0.21 per share earned during last year second quarter. The contribution to net income from both operating segments was down modestly between periods. For the 12-month period ended June, we earned $138 million, or $2.95 per basic share, an improvement from prior period net income of $135 million, or $2.91 per share. Results for the gas segment were markedly better, while the construction segment experienced a slight decline. Let’s turn to second quarter results of the gas segment on Slide 6. A loss of $657,000 was experienced this quarter versus earnings of $1.8 million previously. Operating income declined due mainly to higher operating costs, but was offset by lower interest costs. So other income, which decreased by $2.5 million between periods due mainly to unfavorable returns on company-owned life insurance, or COLI policies, was the primary cause of the decline between periods. Slide 7 provides a breakdown of $4 million operating margin increase, half of which came from customer growth and half from rate relief and other factors. We added 28,000 net customers over the last 12 months consistent with expectations for about 1.5% growth rate. Overall, considering customer growth and rate release, operating margin remains on track to reach our estimated growth forecast of 2% for all of 2015. Moving to Slide 8, you will see that operating expenses increased $5.6 million or 3.5% between quarterly periods. Most of the increase was attributed to higher depreciation and property taxes, resulting from capital expenditures. The reduction in financing cost was attributable to strong cash flows, which allowed us to redeem long-term debt early. I will turn to Slide 9, which summarizes the activity in other income, which declined by $2.5 million between periods. This quarter, we recognized no income on the investments underlying our COLI policies, whereas last year’s earnings amounted to $2.3 million. Next, we will move to Slide 10 and 12-month gas segment results. Net income of nearly $121 million was up about $3.4 million from the $117 million earned in the previous 12-month period. Strong growth in operating margin and flat net operating expenses resulted in a $15 million increase in operating income. A $5.6 million reduction in other income, principally COLI returns, partially offset the improvement in operating income. The next couple of slides further breakdown these components starting with Slide 11 and operating margins. Operating margin grew by $15 million between periods driven by two primary factors. Customer growth contributed $8 million towards the increase, while combined rate relief in California and our Paiute operations kicked in $9 million. Slide 12, total operating expenses. Total operating expenses were flat between periods as increases in depreciation and general taxes were offset by a $14 million decline in O&M expenses. Within O&M, the most significant favorable factors were legal expenses, which fell $5.6 million due to a legal accrual in 2014, which did not recur and a $2 million reduction in rent expense resulting from the company’s purchase of a portion of its headquarters complex, which was previously leased. Slide 13 covers other income and deductions, which declined $11.2 million to $5.6 million. The primary takeaway on this slide is that COLI-related income for the prior period was extremely high due to strong investment returns on assets underlying the policies. On the other hand, in the current period, the $3.4 million return was in the more normal range of $3 million to $5 million. Also, we remind you that in any given period, losses are possible. Next, we will discuss Centuri’s operating results beginning on Slide 14. During the most recent quarter, the construction segment contribution to net income was $5.6 million, down $2.2 million from last year’s $7.8 million. Two factors which influenced this line. First, the loss reserve on the industrial construction project in Canada widened by $2 million. And second, the acquisition of Link-Line made the seasonal aspect of our construction segment more pronounced as it increased a proportionate size of our Northeastern operations and added more fixed cost. This, in no way, dampened our enthusiasm for the business. It’s just a recognition that due to the weather implications, a higher percentage of construction segment earnings are likely to occur during the second half of the year. During the 12-month periods, contribution to net income declined slightly from $17.5 million to $16.9 million. There were several significant factors, which influenced results for both periods, which I will touch on in a minute. Moving to Slide 15, you can see that revenue increased $70 million or 39% between the second quarter of 2014 and 2015. This reflected $32 million of incremental work at NPL and $38 million from the Link-Line acquisition. Construction expenses increased $68 million or 43% between periods with $30 million attributable to NPL and $38 million for the acquired companies. Depreciation expense increased $2.4 million due mainly to equipment purchases to support the higher revenue level, along with $1.4 million of amortizations on acquisition-related intangibles. Now regarding the industrial project, an additional $2 million was incurred beyond our initial reserve estimate to complete the project. The facility is operational and we no longer have employees on-site. We are actively negotiating change orders with the general contractor and believe we will mitigate this loss reserve during the second half of the year. Slide 16 summarizes 12-month construction services results. On the top line, current period revenues totaled $869 million and we are up $207 million between periods with $134 million coming from the acquired companies and $73 million from NPL. Construction expenses increased $189 million with $137 million applicable to the acquired companies and $52 million to the NPL. Depreciation expense increased $9 million, reflecting equipment purchases, Link-Line depreciation of $3.6 million and $4.3 million in amortization of finite live intangibles recognized from the acquisition. The net result of this activity was an increase in operating income of $9.4 million from $28.3 million in the prior periods to $37.7 million in the current 12-month period. Current period operating income reflects a $7.6 million loss reserve on the industrial construction project in Canada as well as $5 million of acquisition costs recorded during the second half of 2014. Prior period operating expenses included $4 million legal settlement recorded in late 2013. As we look ahead to the second half of the year, the construction services segment is well positioned to finish strongly. We are heading into the third quarter construction season peak. There is significant ongoing replacement work in both our U.S. and Canadian service territories. And we are cautiously optimistic that progress will be made on change orders actively being negotiated on the industrial project. I will now turn the time over to Justin Brown for a regulatory update. Justin Brown Thanks Roy. Turning to Slide 17, I would like to focus my comments on the regulatory initiatives that have undergone recent developments since our last earnings call. First, as we have discussed in previous calls, one of our key regulatory initiatives has been to establish infrastructure replacing mechanisms in each of our jurisdictions in order to timely recover capital expenditures associated with projects that enhance the safety, service and reliability to our customers. In Nevada, we recently made our second filing under the recently approved regulations wherein we requested the approval to replace $43.5 million of qualifying projects. These regulations were approved in January 2014 and they authorized Southwest Gas to make annual filings where we will propose the replacement of qualifying projects. We made our first filing in June of last year and subsequently received approval in October 2014 to replace $14.4 million of projects. We anticipate a final commission decision on this year’s application sometime in October. And Nevada regulation, also permit us to make a separate annual filing to implement a surcharge to recover the revenue requirement associated with the previously approved projects. In the fall of 2014, we submitted a rate application and we were authorized to institute a surcharge effective January of this year to collect $2.2 million annually. Similar to last year, we plan to make a proposal on October of this year to update the surcharge to reflect expenditures associated with previously approved projects that have now been completed. In May, the Arizona Corporation Commission approved our requests to update the customer owned yard line or COYL program surcharge to collect annual revenues of $2.5 million, up from the previously approved $1.5 million. The program was approved as part of our last Arizona rate case decision and was most recently expanded in 2014 to include a Phase 2 for the replacement of certain non-Link-Line customer lines. The updated surcharge reflects total capital expenditures of $16 million of which $6.3 million was incurred during 2014 for both Phase 1 and Phase 2. Turning our focus to the two expansion projects, we continue to make progress on the construction of our liquefied natural gas storage facility that was approved by the Arizona Commission. You may recall late last year, we received pre-approval from the Arizona Corporation Commission to construct a $55 million liquefied natural gas storage facility in southern Arizona. We are getting close to completing our due diligence on the land purchase and we recently entered into a contract for the engineering design of the facility. We are looking forward to completing construction of the facility by year end 2017. In Nevada, construction of the Elko County expansion project has officially begun. In June of 2014, our Paiute Pipeline subsidiary made a formal application with the Federal Energy Regulatory Commission requesting approval to build a 35-mile, $35 million lateral to interconnect Paiute with Ruby Pipeline and increase gas supply deliverability to Elko. In May, the FERC issued an order authorizing a certificate of public convenience and necessity to Paiute to construct and operate the project and subsequently provided a formal notice to proceed. Following receipt of the notice to proceed, work began on preparing the 35-mile pipeline corridor for construction. Pipe is also being delivered to the project site and pipeline segments are being welded together and installed. As John mentioned previously, we anticipate construction being completed by year end. Lastly on this slide, you may recall we received approval on California to increase margin by $2.5 million as part of the previously approved annual post test year attrition margin increase of 2.75% per year for calendar years 2015 to 2018. This increase became effective January of 2015. Also consistent with our statements in previous calls, we are still on target for filing an Arizona rate case next year. You may recall, one of the conditions of our last Arizona rate case settlement precludes a filing any sooner than April 30, 2016. Now turning to Slide 18, the purchase gas adjustment or PGA clauses that we have in each of our jurisdictions allow us to adjust rates either monthly or quarterly to timely respond to changing natural gas market conditions and to recover differences between the amount Southwest Gas pays for gas and the cost of gas being recovered from our customers, sometimes resulting in either over or under collections. The benefits of slightly lower and stabilizing natural gas prices combined with having effective PGA clauses in each of our jurisdictions is demonstrated on this slide as we were able to recover approximately $111 million over the first half of this year, moving from an under collected balance at December 31, 2014 to a slightly over collected balance at June 30, 2015. And with that, I will turn it back to John. John Hester Alright. Thanks Justin. Turning to Slide 19, as I mentioned at the outset of our call, Southwest Gas added 28,000 net new customers this past year, continuing the general customer growth trend we have seen across our service territories over the past few years. Moving to Slide 20, indicative data on unemployment rates and employment growth rates in our various service territories are presented in the table shown on this slide. As you can see, unemployment rates in each of our jurisdictions declined year-over-year, reflecting a continuing modest uptrend in general business activity. The trend is less clear, although generally, up in the accompanying employment growth rates displayed. Anecdotal observations seem to confirm a modest continuing upward trend in commerce with major new construction initiatives announced or underway in our major service territories. Moving to Slide 21, we summarized our perspective expectations regarding capital expenditures. We believe that we are on pace to invest $445 million across our service territories by year end. The pie chart on this slide shows a breakout of how those capital dollars will be spent. Looking further into the future, we anticipate that our capital expenditures continue to be in line with our previously disclosed $1.3 billion 3-year capital plan. Turning to our 2015 expectations for the construction services segment on Slide 22, we will continue our ongoing integration efforts to bring the Link-Line Group of Companies into the Centuri Construction Group. We believe we are on track to reach our construction services revenue goal of $950 million to $1 billion by year end. Our operating income for the segment should approximate 6% of revenues depending on the final resolution of our ongoing negotiations related to the Canadian industrial project for which we have recorded a loss reserve. Net interest deductions are expected to be between $7 million and $8 million. Our expectations are before consideration of non-controlling interest and remember that foreign exchange rates and interest rates can impact this segment’s results. Finally, turning to Slide 23 for our outlook for our natural gas utility operations, operating margin is estimated to increase nearly 2% this year. Margin from net new customer growth should be similar to 2014 with the balance of margin growth coming from a variety of rate mechanisms and regulatory decisions. Our operating costs are expected to increase by 3% to 4%. This assumption includes an $8 million pension expense increase to reflect updated actuarial tables. Net interest deductions for this year are expected to be $3 million to $5 million lower than the $68 million recorded in 2014. And finally, as I indicated earlier, our capital expenditures this year should total $445 million. With that, I will turn the call to Ken. Ken Kenny Thanks, John. That concludes our prepared presentation. For those of you who have access to our slides, we have also provided in the appendix with slides that includes other pertinent information about Southwest Gas and can be reviewed at your convenience. Our operator, Kevin, will now explain the process for asking questions. Question-and-Answer Session Operator [Operator Instructions] Our first question comes from Matt Tucker with KeyBanc Capital. Matt Tucker Hey, guys. Thanks for taking my question. First, just wanted to ask at Centuri about the problem project there, could you just give us some sense as to what caused the cost overruns, the nature of the dispute, if you can call it that. Is it more whose it fault or the amount that you are due to recover? And then just kind of what gives you optimism on your position and on the recovery of the cost? Roy Centrella Yes, hi Matt. This is Roy. Well, the project was we talked a little bit about this last time, but it was a relatively short duration project. There is supposed to be 2-month project that crossed over time periods. And when we established the work for this, we are working with the general contractor, there – it was critical that because of that short timeline, the project – the pieces that – the equipment that was needed all come in on a timely basis. And through – really through no fault of our own results, the equipment we needed wasn’t coming in timely and that had, as a result, we had a fair amount of downtime with a good size workforce of about 300 people outside. So, there were – those delays caused revenue – I mean the cost side of the equation to increase. And we finished the project, took probably an extra three days or so to finish and that’s where those extra costs came from. And we initiated negotiations with the general contractor to try to recover those excess cost and that’s where we are today. We believe our position is strong, because we were at the fault of the delay in the equipment coming in. It was a general contractor. And so we are working with them. We would love to settle this without moving to a legal status, but certainly that’s a possibility that we can’t come to the resolution directly. There are legal avenues at what we can pursue. Matt Tucker Thanks. That’s helpful. You kind of preempted part of my next question about kind of the nature of negotiation at this point, but I guess as a follow-up to that, is the general contractor in reasonably good financial condition to your knowledge? Roy Centrella Yes, the best we know. They are a good-sized contractor and have been doing work in the auto industry for a long time. So, we are hopeful that we can make good progress on this leadership. Matt Tucker Got it. Thanks. And then just looking at Centuri’s overall performance in the quarter, if I back out that the project loss, it looks like your operating margin was still about maybe 120 basis points lower year-over-year. If I understand correctly, your view that, that’s primarily attributed to the seasonality in the Link-Line business, is that correct or is there something else that could be going on there? Roy Centrella No, I think that’s the biggest factor. We have some additional fixed cost that come about because of that acquisition, rents and general and administrative costs, things of that nature. And they probably have a bigger summer peak at the Link-Line side of the business than we have at the NPL side. And so as a result of that, we will see more of the earnings shifted to the second part of the year. But right now both sides of the business, the U.S. side and the Canadian side are in their peak operations. Matt Tucker Okay, got it. And then just trying to understand the seasonality a little better, I guess little surprised that the second quarter Link-Line revenues should be lower than the first. Was that unusual, like unusually bad weather this year in the second quarter or is that something you would expect or attributable to something else? Roy Centrella Well, one thing that contract we talked about the industrial project that was all first quarter revenue. And so that’s been – there is no revenues that carried forward from that job into the second quarter. That’s probably the biggest factor. I mean that was $18 million of revenue in the first quarter associated with that job. Matt Tucker Got it. That makes sense. And then just last one, as you are getting further along with the integration of Centuri and getting closer to that $1 billion revenue threshold. You have talked in the past about potentially considering some strategic options for the business when you get there, maybe sometime starting next year? Just wondering if you could update on your current thinking with regard to that? John Hester Hey, Matt, this is John. I think that is our current thinking as we have talked before that we want to make sure that we have the opportunity to continue to grow those businesses and certainly to have a little bit more transparency with the amount of earnings that those businesses will create and I think that they are going to at least need a full calendar year to demonstrate that. And then we will continue to look at our options going forward. We think that certainly, there is a lot of great growth prospects of Centuri. And we think as we talked about a little bit earlier in today’s call that there are a lot of great growth prospects of the utility as well. So, we will continue to try to grow both of those parts of the businesses. And as we continue to go forward, see how the construction services growth rates is going compared to the utility growth rate and continues to look at what options we may have in the future. Matt Tucker Very helpful. Thanks, John. Thanks, Roy. I will back in the queue. John Hester Okay, thank you. Operator Our next question comes from John Hanson with Praesidis. John Hanson Hey, guys. John Hester Hey, John. John Hanson Matt asked most of my questions, but just one kind of follow-up on the construction. What’s your guys view now on more acquisitions in that area? John Hester It’s something that, this is John, John. It’s something that we will continue to look at. One of the things that we have done at Centuri is we have taken a pretty deep dive into what the various business prospects are across the country. We have taken a look at where we have a lot of activity currently being done by the Centuri Group and what kind of markets that we may want to move into. If we see opportunities to move into new markets, we can approach that two ways. We can either start that from the ground up or we can see if there are some smaller tuck-in type companies that may facilitate that growth in markets that we might want to get into. So we will continue to look for those prospects. And if we think it makes sense for our shareholders as an avenue to continue to grow the business profitably we will do that. John Hanson When you talk markets, are you talking more geography or customer type? John Hester Mostly geography, John. John Hanson Good, thank you. Operator [Operator Instructions] And I am not showing any questions at this time. Ken Kenny Okay. Thank you, Kevin. This concludes our conference call and we appreciate your participation and interest in Southwest Gas Corporation. Thank you for being on the call [ph]. Operator Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. 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Duke Energy (DUK) Lynn J. Good on Q2 2015 Results – Earnings Call Transcript

Duke Energy Corp. (NYSE: DUK ) Q2 2015 Earnings Call August 06, 2015 10:00 am ET Executives Bill Currens – Vice President-Investor Relations Lynn J. Good – President and Chief Executive Officer Steven K. Young – Executive Vice President and Chief Financial Officer Analysts Dan L. Eggers – Credit Suisse Securities (NYSE: USA ) LLC (Broker) Shahriar Pourreza – Guggenheim Securities LLC Greg Gordon – Evercore ISI Julien Dumoulin-Smith – UBS Securities LLC Steven I. Fleishman – Wolfe Research LLC Christopher J. Turnure – JPMorgan Securities LLC Michael J. Lapides – Goldman Sachs & Co. Jonathan P. Arnold – Deutsche Bank Securities, Inc. Ali Agha – SunTrust Robinson Humphrey Operator Good day and welcome to this Duke Energy Second Quarter Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Bill Currens. Please go ahead, sir. Bill Currens – Vice President-Investor Relations Thank you, Shannon. Good morning, everyone, and welcome to Duke Energy’s second quarter 2015 earnings review and business update. Leading our call is Lynn Good, President and CEO, along with Steve Young, Executive Vice President and Chief Financial Officer. Today’s discussion will include forward-looking information and the use of non-GAAP financial measures. Slide 2 presents the Safe Harbor statement, which accompanies our presentation materials. A reconciliation of non-GAAP financial measures can be found on duke-energy.com and in today’s materials. Please note that the appendix to today’s presentation includes supplemental information and additional disclosures to help you analyze the company’s performance. As summarized on slide three, Lynn will begin with an update on our principal strategic, operational and financial activities since our last call, then Steve will provide an overview of our second quarter financial results, including updates on economic activities within our service territories, as well as conditions in Brazil. With that, I’ll turn the call over to Lynn. Lynn J. Good – President and Chief Executive Officer Good morning, everyone, and thanks for joining us. Before I start today, I’d like to take a moment to introduce Doug Esamann. Doug recently joined our senior management team and will oversee our Indiana, Ohio, Kentucky and Florida utilities. Doug has over 30 years of experience with Duke Energy, most recently as the President of our Indiana utility. Doug’s depth of regulatory experience as well as his customer and strategic focus complements our leadership team. We look forward to introducing Doug to many of you over the coming months. Now, to the quarter. We are midway through 2015 and continue to execute our operational and strategic growth objectives while positioning the company to meet our financial objectives for the year. This morning, we reported second quarter 2015 adjusted EPS of $0.95, which is consistent with our plan. Our regulated and commercial businesses have performed well over the first half of the year. Additionally, we have completed the sale of the Midwest Generation and the purchase of the NCEMPA assets ahead of schedule. This has allowed us to effectively offset the challenging business environment in Brazil. As a result, we remain confident in our ability to achieve our full-year 2015 earnings guidance range of $4.55 to $4.75 per share. In June, we completed our $1.5 billion accelerated stock repurchase ahead of schedule. Further, last month, we announced that the Board of Directors increased the quarterly dividend to $0.825 per share doubling the annual growth rate to around 4%. This increase reflects our confidence in the strength of our core business and our cash flows. Our balance sheet provides continued support for growth in the dividend. For the past 89 years, the dividend has demonstrated our commitment to delivering attractive total returns to shareholders. I am pleased with the company’s operational performance during the quarter, particularly our response to the extended heat wave in the Carolinas in June. Temperatures were in the upper 90s for much of the month and our system met the increased demand for our customers. In June, we used a record monthly amount of natural gas, approximately 25 Bcf, surpassing the previous month high of 20 Bcf set in July of 2014. Additionally, our nuclear fleet delivered a record second quarter in terms of net megawatt hours of generation. Nuclear capacity factor was around 95% during the month of June. Lastly, our field operations teams met customer needs during the stress of the summer heat and storms. Our ability to meet extreme demand conditions demonstrates the quality of our operations. We’ve made significant headway on other strategic and regulatory priorities, which I’ll briefly cover on slide five. These priorities include investments in new generation, infrastructure and a focus on environmental compliance. Beginning with our investments in new generation. Just last week, we closed on the $1.25 billion acquisition of jointly owned generating assets from the North Carolina Eastern Municipal Power Agency. We closed ahead of schedule, after receiving the required approval sooner than expected. This reflects the mutually beneficial nature of the acquisition and the widespread support we received here in North Carolina. We immediately began supplying power to the 32 municipalities through a long-term wholesale contract. In 2015, we expect a $0.04 earnings per share benefit based upon an expected full year EPS impact of around $0.07 to $0.08. During the second quarter, we also announced the $1.1 billion Western Carolinas Modernization Project. This project includes the early retirement of our Asheville coal plant, which will be replaced by a new 650 megawatt combined-cycle gas plant. We will also build new transmission assets that will improve reliability in the region. Finally, we will install solar generation at the site. The new gas plant is expected in service by the end of 2019 and the entire project will likely be completed by 2020. Before construction begins, various regulators including the North Carolina Department of Environment and Natural Resources and the Carolinas Utility Commissions will need to approve the plan. Our commercial renewables business continues to deliver on its capital growth projects. In April, we completed the 200-megawatt Los Vientos III project in South Texas, which is now delivering power under a long-term contract with Austin Energy. In July, we announced acquisitions of an additional 70 megawatts of solar capacity in California and North Carolina. Our commercial renewables business now has more than 2,000 megawatts of capacity in operation. In July, FERC approved our application to acquire the 599 megawatt combined-cycle Osprey gas plant in Florida from Calpine. The Florida Public Service Commission also voted to approve the acquisition. We remain on track to close by January of 2017 when our existing PPA with Calpine terminates and we have a need for additional generation capacity. Also in Florida, we announced an agreement to purchase a 7.5% stake in the Sabal Trail gas pipeline from Spectra Energy for $225 million. Similar to the Atlantic Coast Pipeline, the Sabal Trail investment will be a part of Duke’s Commercial portfolio. The pipeline is expected in service by the end of 2017 and will serve the growing natural gas needs in the state, including our 1,640 megawatt Citrus County combined-cycle plant, which is expected to be online in 2018. Duke Energy Florida and Florida Power & Light have entered into 25-year capacity agreements with the pipeline. Moving to Indiana, in May, we received an order from the Indiana Commission on the transmission and distribution infrastructure plan. The Commission denied our proposed $1.9 billion investment because they would like to see greater detail. We are working on a revised plan, which we expect to file with the Commission by the end of 2015. Modernizing our electric grid will provide great benefits to customers in Indiana, ultimately increasing reliability, decreasing the duration of power outages and improving customer communication. In the second quarter, we made significant progress on coal ash management activities. In May, we began moving ash at our River Bend site in North Carolina after receiving state permits. We are now excavating ash at three sites in the Carolinas. In June, we announced recommendations to fully excavate 12 additional ash basins in North Carolina, bringing the total ash in the Carolinas we have slated for excavation to about 30%. The remaining ash basins are being further studied to determine appropriate closure methods. We are pursuing solutions that balance safety, environmental stewardship and cost effectiveness. Given our efforts over the past year, we are ahead of the curve in adapting to changing regulations our industry faces with ash management. On the subject of environmental rules, on Monday, the U.S. EPA finalized a Clean Power Plan, a regulation aimed at reducing carbon emissions from existing power plants 32% by 2030. The guidelines issued this week are more than 1,500 pages long and among the more complex rules in recent history. This rule sets state specific reduction targets and builds upon the substantial progress we have already made to reduce our environmental footprint. Since 2005, we have reduced our total carbon dioxide emissions by 22% through retirement of older coal units, the transition to cleaner burning natural gas, as well as investments in renewables and energy efficiency. Our plans continue to move us toward a lower carbon future. We will work constructively with our states to identify solutions that preserve the reliability and affordability our customers expect. As we continue to modernize our system, managing energy diversity will be an important consideration. As I look back over the first half of 2015, I am pleased with what we’ve accomplished on multiple fronts across the business. I’m even more pleased with the groundwork we’re laying for the years ahead. We’re making strategic long-term investments that will benefit our customers and communities in addition to supporting growth for shareholders. We’re developing and executing strategies that will position the company well in a rapidly changing industry. Now, I’ll turn the call over to Steve to discuss the quarter in more detail. Steven K. Young – Executive Vice President and Chief Financial Officer Thanks, Lynn. Today, I’ll review our second quarter financial results and discuss the economic conditions in our service territories. I will also provide an update on the accounting and expected costs for our coal ash management activities and review our results in Brazil. Let’s start with the quarterly results. I will cover the highlights on slide six. For more detailed information on segment variances versus last year, please refer to the supporting materials that accompany today’s press release. As Lynn mentioned, we achieved second quarter adjusted diluted earnings of $0.95 per share compared to $1.11 in the second quarter of 2014. On a reported basis, 2015 second quarter earnings per share were $0.78 compared to $0.86 last year. A reconciliation of reported results to adjusted results is included in the supplemental materials to today’s presentation. Regulated Utilities adjusted results declined by $0.09 per share, primarily due to a prior year favorable state tax settlement, planned timing of O&M cost and higher depreciation and amortization. O&M cost increased this quarter due to the planned timing of outages across the generation fleet and approximately $0.05 due to nuclear outage cost levelization impacts recognized in the prior year. This is the last quarter in which we expect nuclear outage cost levelization to be a significant driver over the prior year results. We are on track to achieve our targeted full-year O&M budget and continue to look for opportunities to reduce costs. These negative drivers were partially offset by higher margins, resulting from growth in wholesale contracts and weather normal retail sales. We had favorable weather in the quarter as a significant heat wave gripped the Carolinas in June. Weather added around $0.03 over last year’s second quarter and $0.06 compared to normal conditions. We also experienced higher earnings of $0.03 this quarter from pricing and riders, primarily due to increased energy efficiency programs. International’s quarterly earnings declined $0.13 over last year, due to factors we continue to monitor, including the economic conditions and lower demand for electricity in Brazil. As you will recall, International also had a favorable income tax adjustment of $0.07 in last year’s quarter, associated with the reorganization of our operations in Chile. Our Commercial Portfolio, formerly Commercial Power, is primarily made up of our commercial renewables business. In the second quarter, we incurred slightly lower earnings, due to lower wind production. This decrease in wind production was experienced broadly across the United States. Turning to slide seven, I’ll now provide some insight into the second half of 2015. And the key drivers that give us confidence in our 2015 guidance range of $4.55 to $4.75 per share. Through the first half of the year, our adjusted earnings per share of $2.20 is consistent with our plan. The regulated business has experienced favorable weather, and has seen strong growth in wholesale contracts and weather normal retail sales. The sale of the Midwest Generation fleet, as a whole, has been favorable to our plan in the first half of the year. These positive drivers have helped offset continued weakness at International. In order to achieve our full-year 2015 earnings guidance range, we expect higher EPS contributions in the back half of the year, over what we earned in the comparable period last year. There are a few primary drivers that support this. First, we expect continued growth in contracted wholesale volumes, as well as organic growth in retail demand over the last half of the year. Second, we experienced unfavorable weather last year in the third quarter. Assuming normal weather for the remainder of this year provides an uplift of $0.05. Third, the early completion of the NCEMPA asset purchase will provide an additional earnings per share impact of around $0.04. Earnings from our Commercial renewables business should also see an improvement in the second half of the year. We are on track to put over 200 megawatts of additional wind and solar capacity into service later this year, which would bring 2015’s total additions to more than 400 megawatts. Related to O&M cost, we expect third quarter O&M to be higher than the prior year, while fourth quarter should be lower. As a result, O&M shouldn’t be a significant driver in the second half of the year. Similarly, we expect International’s earnings contribution in the second half of 2015 to be comparable to last year. This is not a full list of drivers for the rest of the year, but these represent variances that are likely to occur based on current expectations. As you are all aware, the third quarter is historically our strongest quarter. We will be in a position to provide more insight into the year after we see those results. Moving on to slide eight, I’ll now discuss our retail customer volume trends. On a rolling 12-month basis, weather normalized retail load growth increased by positive 0.1% driven by strong second quarter growth of positive 1.7%. This was the first quarter we have experienced positive growth across all customer classes in over a year. Although, one quarter does not make a trend, this recent uptick is encouraging. Within the residential sector, we continued to experience strong growth in the number of new customers, approximately 1.3% over the same period last year. The growth in the Carolinas and Florida regions has been particularly strong, at around 1.5%. The Carolinas and Florida also saw usage per customer level off, after trending lower over the past several quarters. We continue to see favorable trends in the key indicators for the residential sector including, employment, median incomes and household formations. In fact, the 6 states we serve captured over 20% of the additional nonfarm job growth over the last year. The commercial sector grew by 0.3% on a rolling 12-month basis. This sector continues to benefit from declining office vacancy rates, and expansion in the medical and restaurant subsectors. We’ve also experienced some growth in the tourism related businesses, in certain markets. The industrial sector grew by 1.3% on a rolling 12-month basis. This growth was led by metals, transportation, construction and chemicals. Additionally, we are starting to see textiles in the Carolinas build momentum. We will continue to monitor the impact of the strengthening U.S. dollar on manufacturing activity. Our economic development teams remain active, successfully helping attract new business investments into our service territories. So far this year, these activities have led to the announcement of another $1.7 billion in capital investments, which is expected to result in over 5,000 new jobs, across our six states. We are encouraged by the continued strengthening of the economy, particularly in the Southeast. We remain on track to achieve our full-year 2015 weather normalized load growth of between 0.5% and 1%. Moving on to slide nine. Let me update you on our coal ash management activities. First I’ll cover adjustments to our asset retirement obligations related to coal ash basin closures. As you’ll recall, in the third quarter 2014, we recorded an approximate $3.5 billion ARO, reflecting our best estimate to comply with the newly enacted Coal Ash Management Act or CAMA. In April, the U.S. EPA published its final Coal Combustion Residuals Rule in the Federal Register. The EPA’s final rule is consistent with our compliance plan for basins in North Carolina under CAMA. However, the final rule did create a legal obligation related to ash basins outside of North Carolina and existing landfills across our system. Therefore during the second quarter, we recorded an additional $1 billion obligation representing our best estimate of cost to comply with the new Federal EPA rules. As of June 30, we now have total ARO obligations of $4.5 billion, which represents our best estimate to comply with state and Federal rules. These costs will be spent over the next several decades. We will continue to refine this estimated liability as plans are finalized. Next, let me summarize our cash spending assumptions for our coal ash activities. In February, we estimated $1.3 billion in spending from 2015 to 2019, to close the initial high-priority sites under CAMA. During the quarter we announced our recommendation to fully excavate 12 additional basins in the Carolinas. Our estimate of cost to close these additional basins ranges between $700 million to $1 billion. Ultimately, we expect these costs will increase our five year capital spending plan that was disclosed in February. However, we are unable to predict the precise timing under which we will incur these costs until the final risk classification is set by the North Carolina Department of Environment and Natural Resources and the Coal Ash Commission. We will continue to provide updates as our plans become finalized. There is still work to do with our remaining basins and we will keep you updated as we continue to refine our estimates. Taking a look at slide 10. Let me provide an update on our International business. As we entered the year, we anticipated challenges at International due to one, the prolonged drought conditions in Brazil, causing thermals to dispatch of hydros for the entire year. Two, unfavorable Brazilian foreign exchange rates. Three, declining earnings contributions from our interest in National Methanol, which sells products that are correlated to Brent crude oil prices. And four, a prior year Chilean tax benefit. We also assume no energy rationing and around 2% growth in demand for electricity. During 2015, reservoir levels continue to be low. Rainfall has recently been above average in the Southeast region of Brazil, where our assets are located. Reservoir levels stood at about 37% at the end of July, higher than the 20% level they started the year. However, they are still low for this time of the year. These conditions have caused the system operator to continue to dispatch thermals ahead of hydros. Additionally, the government is continuing to encourage customers to voluntarily reduce electricity consumption. The economy in Brazil continues to weaken as evidenced by S&Ps recent change in outlook for the country’s credit ratings. The softer Brazilian economy, higher tariff prices for end users and the voluntary conservation measures have placed additional pressure on electricity demand so far in 2015. As a result, we now expect 2015 electricity demand in Brazil to be lower than 2014. Taking this all into account through the second quarter of 2015, International’s earnings have declined by $0.26 per share, compared to last year. As you will recall, our original full year forecast of International contemplated about $0.12 per share of lower year-over-year earnings. We do not expect these levels of year-over-year weakness to continue into the second half of 2015. We expect the third and fourth quarters to be more comparable to the second half of 2014 for the following reasons: First, the system operator began to change the dispatch order to the detriment of hydro generators in the second quarter of 2014. So in the second half of 2015, generation dispatch order will be similar to what it was in the second half of 2014. Second, the shaping of our contract should create a less significant short position in the second half of the year than we saw last year. Finally, we have seen recent declines in the market settlement prices or PLD. In June and July, these prices fell below the established ceiling of R$388, averaging approximately R$300 per megawatt hour. These lower spot prices should provide some relief as we continue to cover our short position through market purchases, helping offset the impact of lower demand. Our International team continues to manage well in this difficult environment, concentrating on items within their control. We actively are managing our ongoing contracted levels and focusing on our cost management during this downturn. However, we do not expect International to meet its original financial plan for the full year. Before moving on, let me mention a recent development in Brazil that has received some media attention. There have been recent discussions aimed at providing some financial relief to the hydro generators. These discussions are in the early stages and it is difficult to speculate on how they may play out. We’ll keep you updated as events unfold. Slide 11 outlines our financial objectives. The balance sheet is strong and our credit ratings are in line with our target levels, allowing the company to access the financial markets on reasonable terms. We are executing our plan to access $2.7 billion of international cash over several years. In June, we returned approximately $1.2 billion to the U.S. The strength of our balance sheet and cash flows helps fuel our growth strategy, support the dividend and maintain low cost rates for our customers. Our dividend continues to be a very important piece of our shareholder value proposition. In July, we were pleased to announce an increase in our quarterly dividend growth rate from 2% to approximately 4%. In 2010, we have been working to reach our target payout ratio of 65% to 70% of adjusted EPS. Now that we are at the high end of that ratio, we will continue to target dividend growth more in line with our long-term earnings growth targets. Let me provide an update on our earnings growth objectives, both short term and long term. We are on track to achieve our 2015 guidance range of $4.55 to $4.75 per share. Near-term headwinds at the International business have been offset by strength in Regulated Utilities and early execution on some of our strategic initiatives. On a longer term basis, we continue to target earnings per share growth of 4% to 6%, underpinned by the strength of our domestic businesses. We are executing on our strategic growth initiatives, which provides a foundation for growth through 2017 and beyond. Our International business however, continues to face unfavorable macroeconomic trends such as poor hydrological conditions and a weakened economy in Brazil. As we look beyond 2015, the extent and duration of these challenges is uncertain. We will learn more as the year progresses, and we’ll evaluate the longer term impacts as we finalize our financial plans for 2016 and beyond. We remain committed to delivering long-term value for our investors. With that, let’s open the line for your questions. Question-and-Answer Session Operator Thank you. And we will first go to Daniel Eggers with Credit Suisse. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Hey. Good morning, guys. Lynn J. Good – President and Chief Executive Officer Hi, Dan. Steven K. Young – Executive Vice President and Chief Financial Officer Hello, Dan. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Hey. On the load growth numbers in the second quarter, I guess both customer gains, weather adjusted usage, both looked pretty good and kind of broke from trend that we’ve seen the last couple quarters. Should we read much into things getting better and this being perpetuated or this is just kind of the – some of the volatility that comes with quarterly adjustments in numbers? Steven K. Young – Executive Vice President and Chief Financial Officer Well, Dan, as we said, I’m always careful when I just look at one quarter’s results. I think we have to always have that in the back of our mind. We are seeing some pretty good trends here, though on a few factors that I will mention. The growth of customers into the Carolinas and Florida has been ramping up from 1% now to 1.5% and that’s got to be a good metric there for the future as we move forward. We’re also seeing some favorable statistics when we look at new housing starts in our service territories, meaning new homes are starting to get actually built. We’re also starting to see a lower number of rejections of mortgage applications which say that people are having the funds to buy a home or a place to live, some of those statistics are certainly compelling. We’re always cautiously optimistic on one quarter, but there are some good results here. Lynn J. Good – President and Chief Executive Officer And Dan, one thing I would add that Steve talked about in the script, we’ve been tracking lower usage per customer kind of quarter-after-quarter and actually, saw a leveling-off of that reduction this quarter as well, which is another thing that I would point to as a bit of a new trend for us. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) When we think about the load growth and you guys were at 0.5% to 1%, this year, I know you’ve kind of talked about 1% being more of a normalized long-term target. How important is getting to that 1% number to the utilities being able to support their end of the 4% to 6% growth target? Steven K. Young – Executive Vice President and Chief Financial Officer It’s important, Dan. As you know on our sensitivity, a 1% increase in our organic load growth would translate to about 2% earnings growth, and it is essential to us to see growth in our service areas. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) The trends you’re seeing right now, are they giving you encouragement that 1% is feeling a little bit better after maybe feeling a bit shaky the last couple quarters? Steven K. Young – Executive Vice President and Chief Financial Officer Well, as I mentioned, I think some of these trends behind the good quarter we had in the second quarter do make us feel well. As Lynn mentioned, the usage decline stopping per customer and some of the raw data on employment, median household income starting to pick-up and get a bit of traction in our service territories, do give us some comfort there. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Okay. I’m sure, that folks are going to ask about it, but just on the international side. Looking past this year, are you guys thinking that things that are happening this year are structural or do you think they’re situational to these market conditions? Lynn J. Good – President and Chief Executive Officer Dan, I think there are a combination of things going on. The hydrological conditions, I believe were seasonal, right. So, if we have a strong rainy season that starts in the fall, continuing into 2016, we may see a situation where dispatch order changes. I think the regulatory body in Brazil has learned a lot about the changing generation mix and how that fleet has reacted in this environment. So, over maybe a short-term to medium-term, we could be some mitigation of some of the pressures there, or changes in regulation that could be helpful to the hydro operators. I think the long-term issues are more around the Brazilian economy. And does the Brazilian economy get traction again and start growing at a pace that would be more consistent with what we have seen over the last decade. So, I think you’ve got a combination of shorter-term and medium-term to longer term issues. And so, our focus is to be as transparent as we can on what we see, and we’ll continue to update you as the year progresses. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Very good. Thank you, guys. Operator Next question comes from Shar Pourreza with Guggenheim Partners. Shahriar Pourreza – Guggenheim Securities LLC Good morning. Lynn J. Good – President and Chief Executive Officer Hello. Steven K. Young – Executive Vice President and Chief Financial Officer Hi, Shar. Shahriar Pourreza – Guggenheim Securities LLC Steve, I think you sort of touched on this in your prepared remarks, but on the injunctions in Brazil, is there preliminary, is there any procedural process that we could follow to see how things are transpiring? And then the second question is Brazil does have relatively high rates. So is there any talk on how – the potential of passing these costs onto customers? Steven K. Young – Executive Vice President and Chief Financial Officer Yeah, Shar, on the injunctions, in talking with our teams in Brazil, I don’t know that there is a set timeframe or schedule that you can look to to determine resolution of this. I think these initial injunctions and discussions around the market, by various stakeholder groups are a positive step. But we expect that it will take quite a bit of time to resolve this issue, and get new processes and settlements in place. So that’s just the nature of the way these negotiations often go in Brazil. So I wouldn’t look for a timeframe there. Regarding Brazilian retail rates, they did jump up quite a bit over the past year. And certainly that is something that is on the minds of Brazilian politicians, as to how do we deal with the cost of this out of dispatch situation due to hydrology issues. And right now, the hydro generators are bearing a lot of that burden, and the customers have borne some burden as well. That’s part of the debate that will be worked upon over the next year or so in Brazil. Shahriar Pourreza – Guggenheim Securities LLC Got it. Got it. And then on slide 11, you added a new footnote, footnote 3. Just curious, this footnote, is it basically inferring that the 4% to 6% is embedding some of the challenges you’re seeing in the International business, or it’s sort of pending some of the challenges that you’re seeing in International business? Lynn J. Good – President and Chief Executive Officer You know, Shar, what I would say is, given the depth of the challenge we’ve experienced during the first six months, and the fact that we’ve seen hydrological conditions really coupled with some of the complexities around other economic factors including Petrobras, and other things going on in Brazil. That the duration of this challenge is uncertain to us as we look past 2015. So when we look at the back half, we believe the back half of 2015 will be reasonably comparable to 2014. We’ll be anxious to see how the rainy season begins, but we need more information and time to look at our forecast for 2016 and 2017. And so, we wanted to just provide some transparency on that, and that’s the – really consistent with the remarks we shared with you today. Shahriar Pourreza – Guggenheim Securities LLC Got it. Got it. And then just lastly, on the weaker wind resources was a little bit of a theme this quarter. Is this something that we should think about from a structural standpoint just given that the El Nino cycle is just starting or is this something that’s sort of a bit of an normally? Steven K. Young – Executive Vice President and Chief Financial Officer I don’t know that I’ve heard anybody profess to understand the wind patterns that well, Shar, that they could predict them. So I don’t know that it’s anything more than an anomaly now. We’re heading into the second half of the year where the wind traditionally picks up. So we’ll get a better idea after that. Shahriar Pourreza – Guggenheim Securities LLC Excellent. Thanks very much. Lynn J. Good – President and Chief Executive Officer Thank you. Operator Next question comes from Greg Gordon with Evercore ISI. Greg Gordon – Evercore ISI Good morning. Lynn J. Good – President and Chief Executive Officer Greg. Steven K. Young – Executive Vice President and Chief Financial Officer Hey, Greg. Greg Gordon – Evercore ISI So, I just wanted to go over some of the things you said just to make sure I understand them in terms of looking on actually slide 14, which is your original assumptions put up against your year-to-date results. It looks like you’re basically telling us that if International is flat in the second half versus the second half last year, that you’re $0.10 behind plan. On the other hand, you’re saying you’re $0.04 ahead of plan at the utility because of the early close of the NCEMPA acquisition and then you’re also – see better results in the second half versus the second half of last year in the Commercial business because of the 400 megawatts of new renewables and that’s how you sort of get back to plan. Is that a reasonable summary of what you said or am I missing something? Steven K. Young – Executive Vice President and Chief Financial Officer I think you’ve hit on some of the elements there. Assuming normal weather over the last half of the year, and we have had warm weather in July, you get a pick up there. Certainly, the wholesale contract associated with the NCEMPA acquisition provides about $0.04 there. We’ve also seen growth in our retail load year-over-year, even at modest percents that can add several cents to it. If it stayed like the second quarter’s results, it would be more than that. Our wholesale business has also picked up through new contracts with co-ops and munis in the Carolinas and in Florida in particular. So, those are some of the things that we look to to continue provide growth over the second half of the year. Lynn J. Good – President and Chief Executive Officer And, Greg… Greg Gordon – Evercore ISI Great. I understand that. I guess to clarify my question, many of those things were baked into the $2.95 billion budget. Lynn J. Good – President and Chief Executive Officer Yes. Greg Gordon – Evercore ISI I assume normal weather was baked in there. The wholesale pickup was – you were very, very clear on in your disclosures on the expectation there. So, I’m just focused on what’s changed from the plan. I guess you’re a little bit ahead of normal going into July which is good, NCEMPA closed early which is good. So, I’d really like to circle back to your answer and focus on what’s changed that’s not in the plan. $0.04 from NCEMPA… Lynn J. Good – President and Chief Executive Officer So, let me give it a try. Greg Gordon – Evercore ISI Okay. Lynn J. Good – President and Chief Executive Officer Yeah, Greg, let me – so, if we step back from this, as we started the year, we expected the back half to be stronger than the first half from the get-go. And then, if you look at the first half of the year, the weakness in Brazil has basically been offset by strength in the regulated business. We had weather that was strong and comparable to last year, even a bit ahead. We had an early closing in the Midwest Generation sale, which gives us incremental. When you go to the back half, we expect the back half to be stronger, wholesale growth, retail growth. Our O&M outage was more in the first half than the second half. And then, we have the sweetener of the NCEMPA transaction closing. And so, the weakness that we offset in the first half with weather and strong results, we don’t expect to see in the back half because we think Brazil will be comparable to 2014. Greg Gordon – Evercore ISI Great. And that 400 megawatts… Lynn J. Good – President and Chief Executive Officer Does that help? Greg Gordon – Evercore ISI …of new renewables coming in, in the back half of the year is baked into your $185 million plan or is that stuff…? Lynn J. Good – President and Chief Executive Officer It is. Steven K. Young – Executive Vice President and Chief Financial Officer Yes, it is. Greg Gordon – Evercore ISI Okay. Great. That’s much clearer. Thank you very much. Have a good morning. Lynn J. Good – President and Chief Executive Officer Thank you. Operator Next question comes from Julien Dumoulin-Smith with UBS. Julien Dumoulin-Smith – UBS Securities LLC Hi. Good morning. Lynn J. Good – President and Chief Executive Officer Hi, Julien. Steven K. Young – Executive Vice President and Chief Financial Officer Hi, Julien. Julien Dumoulin-Smith – UBS Securities LLC So, perhaps to follow-up on Greg’s question just a little bit and be clear. First, where do you stand in the context of 2015, if you can specify? And then, perhaps more broadly as you think about the 4% to 6%, is there any thought or expectation to update that and specifically rebase at any point or how do you think about that given where you stand on hydro and obviously 2015 is – could be a weather event related, but I’d be curious if you want to just elaborate on the 4% to 6% at this point too? Lynn J. Good – President and Chief Executive Officer So, Julien, we are on plan through the first half. And for the reasons we just discussed, we’re confident we’ll remain within the range of $4.55 to $4.75. In terms of guidance, our current thinking is that we will approach that in the same way we always do. So, you’ll have February of 2016 for 2016 and for the longer-term outlook. We will continue to update you in third quarter on any further developments we see in any part of the business as we also normally do. So that’s the schedule we’re thinking about at this point. Julien Dumoulin-Smith – UBS Securities LLC Got it. But perhaps just more specifically, rebasing, is there any thought process of rebasing the base year of that 4% to 6% at all? And then, perhaps the second bigger picture question if you will, with regards to the Clean Power Plan and I know, obviously incredibly complex as you already alluded to. Could you elaborate how the company is positioning to capture opportunities there and obviously you’re involved in many of the key angles that would benefit in theory from the CPP, but could you elaborate how you are thinking about taking advantage of each of those respective niches? Lynn J. Good – President and Chief Executive Officer And on rebasing, Julien, we’re anchored in 2013 at this point. We will rebase at some point. We haven’t made a final decision on that and we’ll update guidance in February of 2016. The Clean Power Plan appreciates those questions and we are continuing to digest, we do not have a definitive plan in any of our jurisdictions. Of course it will impact our IRP planning, and impact our thinking on state-by-state. As I’m sure you’re aware, the plan did change emission reduction targets. So we have more stringent targets in the Midwest. We have moderately less stringent targets in the Southeast, North Carolina, South Carolina and Florida. There’s a notion being introduced of a market trading platform, which is new, which we’ll need to evaluate, and then the compliance period with these incentive credits and so on, in 2020, 2021, I think, will also be something that we digest. So, we’re beginning to understand the elements, I think there is flexibility here. It will be important to involve a stakeholder and state process. These are the states’ implementation plans ultimately. But we believe that much as we’ve delivered consistent carbon reductions over the last 10 years, we’ll be looking for a way to continue progress in that direction, at the lowest cost to our customers. Julien Dumoulin-Smith – UBS Securities LLC Great. Thank you. Lynn J. Good – President and Chief Executive Officer Thank you. Operator Next question comes from Steve Fleishman with Wolfe Research. Steven I. Fleishman – Wolfe Research LLC Yeah. Good morning. Lynn J. Good – President and Chief Executive Officer Hi, Steve. Steven I. Fleishman – Wolfe Research LLC Hi, Lynn. A couple questions. First, just specific details. So, I think you guys said, you expect it to be $0.12 down in 2015 in International versus 2014 and in the first half, you’re down $0.26. So, assuming it’s flat the rest of the year, that means you’re kind of off by about $0.14 from plan. Could you maybe just break up, what makes up that $0.14, how much is it below average? How much is it the hydro versus some of the other, the economy or currency or other things, at least a rough cut of that? Steven K. Young – Executive Vice President and Chief Financial Officer Yeah, Steve. The bulk of that is – and you’re just talking about International, the delta in International? Steven I. Fleishman – Wolfe Research LLC Yes. Steven K. Young – Executive Vice President and Chief Financial Officer From the original expectations versus where we’re at now, is that correct? Steven I. Fleishman – Wolfe Research LLC Yes. Steven K. Young – Executive Vice President and Chief Financial Officer Yes. The biggest difference that we’re seeing is the impact of informal rationing, if you will, and the weak economy, those two impacts on the demand for power in Brazil. When we set up our assumptions in February, we stated we had no assumption of informal rationing and we had over 2% demand growth. And now what we’re seeing is that the demand is actually slightly negative. Because thermals are dispatched first, all of that delta, all of that swing comes out of hydros. And of course, we’re a hydro owner here. So that is the big difference that we did not have in the $0.12 downtick for International back in February. And we stated we didn’t have any view on rationing in the numbers if rationing came about or lower demand, the results would be lower. So that is by far the bulk of the difference in International. Steven I. Fleishman – Wolfe Research LLC Okay. Lynn J. Good – President and Chief Executive Officer Steve, one thing I might just point out, Chile, the Chilean tax adjustment that was reflected in second quarter of 2014 is $0.07 of that $0.26 that was planned. We were aware of it. And the additional weakness is in Brazil and NMC [National Methanol Company], the oil prices have deteriorated slightly, but we saw a lot of that at the beginning of the year. And then all the conditions, we’ve talked about here on further weakening in Brazil is where the larger challenge has originated. Steven I. Fleishman – Wolfe Research LLC Okay. So when we think about beyond 2015 and if we made the jump that hydro might actually normalize. The issues outside of that are primarily related to the economy, I assume somewhat currency and are those two main issues? Lynn J. Good – President and Chief Executive Officer I think those are two main issues, Steve. Steven I. Fleishman – Wolfe Research LLC Okay. Any thoughts to reconsider strategic alternatives for the business? Lynn J. Good – President and Chief Executive Officer Steve, that’s a question we’ve spent a fair amount of time on as you imagine. We thought our process and I still believe our process last year was a good one, very thorough. We were looking at growth, we were looking at cash and we solved the cash, which we believe is important to supporting the dividend. We’ve already brought home, $1.2 billion of that $2.7 billion. There is no question we’re operating in a challenging environment, and all of the factors we talked about today are something that the team in International is focused on. I am pleased with the way they’ve responded to these challenging conditions. And at this point, I don’t have anything further to share on how we think about this business strategically, but we’ve certainly learned a lot about volatility in this business as a result of these recent events, and that’ll factor into our planning in the future. Steven I. Fleishman – Wolfe Research LLC Okay. And then one last question maybe at a high level. Between the balance sheet and position you have now, and things like the securitization coming in Florida some point soon, how much available cash or balance sheet capacity do you have for investment in growth opportunities, right now? Steven K. Young – Executive Vice President and Chief Financial Officer Well, we have a solid balance sheet and we have a number of growth opportunities, where our capital spend is typically in the neighborhood of $7 billion a year. So, there is… Steven I. Fleishman – Wolfe Research LLC I’m sorry. I want to make sure – I mean above kind of what you’re planning to do right now? So, like if you had opportunities that go above the current investment plan? Lynn J. Good – President and Chief Executive Officer We do. Steven I. Fleishman – Wolfe Research LLC And how much upside? Yeah. Okay. Lynn J. Good – President and Chief Executive Officer We haven’t quantified that specifically. The one thing I would say, Steve, is if you look at the leverage in the business, the utilities are situated relative to their cap structure that they earn on, capacity sits at the holding company and we’re probably at 27%, 28% of HoldCo debt. There’s probably capacity at HoldCo, up to 30% or maybe a little bit above, depending on how the credit rating agencies look at that. So, can’t quantify it any more specifically than that, but we’re committed to our ratings. We think we have an incredibly strong balance sheet with flexibility, to address and we think the business requires. And we’ll continue to manage that accordingly. Steven I. Fleishman – Wolfe Research LLC And how much will you get from securitization? Steven K. Young – Executive Vice President and Chief Financial Officer We will get about $1.3 billion from the securitization process. We’re targeting the first quarter of 2016 to get those funds. About half of those funds will be used to displace Florida – Duke Energy Florida OpCo debt, the other half of the funds will come up to the parent. Steven I. Fleishman – Wolfe Research LLC Okay. Thank you. Lynn J. Good – President and Chief Executive Officer Thank you. Operator Next question comes from Chris Turnure with JPMorgan. Lynn J. Good – President and Chief Executive Officer Good morning. Christopher J. Turnure – JPMorgan Securities LLC Good morning, guys. Steven K. Young – Executive Vice President and Chief Financial Officer Hello. Christopher J. Turnure – JPMorgan Securities LLC You kind of mentioned in your prepared remarks and then in response to an earlier question that, it’s too early to tell what’s going to happen potentially with GSF reform (49:07) in Brazil and I can definitely appreciate that. But, do you have at least a sense as to what the EPS impact would be there, if we went from say a 20% now to a 10% or a 5% protection type level, just versus normal in any given full year? Steven K. Young – Executive Vice President and Chief Financial Officer We don’t have any sensitivities on that, Chris. There is a lot of variables here? Where is our contracted load? What is the PLD price? So there is just variables there that are too multiple for us to try to put a metric on. Lynn J. Good – President and Chief Executive Officer And I think… Christopher J. Turnure – JPMorgan Securities LLC Okay. Lynn J. Good – President and Chief Executive Officer …as we get to a point of clarity on the way the courts and the way the regulation will change, we’ll be in a position to give you a better sense of timing, what our contracted position is, where we we’re forecasting PLD. But it’s premature to do this at this point, because there are too many moving parts. Christopher J. Turnure – JPMorgan Securities LLC Okay. Fair enough. And then, just kind of going back to the 2016 and beyond picture, it’s still pretty early here to talk about any potential growth guidance changes. But I just wanted to address maybe balance sheet capacity like we were talking about in the last question or just your ability to do other things outside of what you’ve already talked about, whether it’s accelerating more repatriation of cash or doing other securitizations outside of the Florida one that you already have in plans or maybe pulling forward Carolina’s rate cases earlier than the kind of 2017 to 2018 timeframe than you’re currently thinking about right now? Lynn J. Good – President and Chief Executive Officer In connection with our planning process, Chris, we’ll look at every element of the business to ensure we’re delivering as much value as we can. I think we’ve demonstrated an ability to identify investment projects that are beneficial to customers and also delivering returns to shareholders. We do have flexibility in the balance sheet for additional investment. So, we’ll be evaluating all of those alternatives in connection with our business planning process. Christopher J. Turnure – JPMorgan Securities LLC Okay. But at this time nothing is seeming more likely than not or nothing’s standing out in your mind? Lynn J. Good – President and Chief Executive Officer Yeah. Nothing that I would share at this point. Christopher J. Turnure – JPMorgan Securities LLC Okay. Great. Thanks. Lynn J. Good – President and Chief Executive Officer Thank you. Operator Next question comes from Michael Lapides with Goldman Sachs. Michael J. Lapides – Goldman Sachs & Co. Hey, guys. Just wanted… Lynn J. Good – President and Chief Executive Officer Hi, Michael. Michael J. Lapides – Goldman Sachs & Co. …to revisit – hi, Lynn. Just wanted to revisit a few things on the Regulated side of the house. First of all, can you remind us for the spend you do on coal ash in North Carolina what the cost recovery process is, meaning, how do you actually – how and more importantly, when do you actually get this in rates? Steven K. Young – Executive Vice President and Chief Financial Officer Yes, Michael. There is no definitive plan for collection of the coal ash in rates. We spent about $100 million to-date on this and that will ramp up over the next several years. And the way this will work, we’ll start spending and acting on our plans in conjunction with CAMA over the next several years. And then at some point, an appropriate point, we can go in for a rate case, and we can incorporate coal ash spend into that rate case. So we have flexibility there, there is no set timeframe for this. And you might look in time and think about the next rate case, being associated with the completion of a large power plant, a combined cycle or a completion of a lot of nuclear work in Duke Energy Progress area. That might put you in the later part of the teens, for going in for a rate increase. At that point in time, we would probably request an increment in base rates for coal ash recovery. And the Commission would then begin to monitor coal ash cost recovered through rates versus coal ash spent and adjust it from there, this is not like a normal capital project, where you spend over in a short intense period and then are completed, the spend will go on for a long time. So I think it will have that type of nature of recovery to it. Michael J. Lapides – Goldman Sachs & Co. There is precedent in North Carolina for more real-time recovery of environmental cost, thinking back to like Clean Smokestacks from a number of years ago, just curious, is there an opportunity, whether via a regulation or via legislation – and I’m not sure which one it would require – to get more real-time recovery of coal ash spend and more kind of the certainty of recovery over time? Lynn J. Good – President and Chief Executive Officer Yeah, Michael. I’ll take that one. I think North Carolina has demonstrated over a long period of time recovery of mandated cost and certainly coal ash, whether it’s at a state level or Federal level, those are required costs of decommissioning the plants. I don’t see in the next year or two, any change in the recovery mechanism that Steve just described and given the magnitude of the spend that we’re talking about, I think that’s reasonable. So, we’ll be addressing it in connection with the general rate case and evaluating what else might make sense over time. I think about Clean Power Plan, I think about – we have trackers for renewables. There are a variety of events that could trigger consideration of other forms of recovery. But I don’t see coal ash as being one that would – we would approach as a single item at this point. Michael J. Lapides – Goldman Sachs & Co. Got it. One last question on utility O&M. Did I hear correctly that what you’re basically saying is, O&M levels in the second half of 2015 will be flat to second half 2014? Steven K. Young – Executive Vice President and Chief Financial Officer Yes. That’s correct, Michael. Michael J. Lapides – Goldman Sachs & Co. When you look at broader O&M, what are you – at the Regulated businesses and especially in the Carolinas – what do you see as potential – you’re a couple of years out post-merger, but continued cost saving opportunities to where instead of flat, it’s even potentially down? Steven K. Young – Executive Vice President and Chief Financial Officer Some of the cost savings opportunities that we are now pursuing are the rollout of work management systems. We’ve already done a lot the corporate work. We’ve rolled out work management systems in the fossil area. We’ve done a lot of nuclear work. But now we’re rolling out into T&D and that’s more dispersed in asset location and employee workforce. So, that’s an area that is ripe for some benefits. So, we’ll continue to roll these projects out and have some opportunities here to offset some of the cost increases that we face, such as cyber security, normal inflation, Fukushima and that kind of thing, but I do believe there are efficiency opportunities still out there. Michael J. Lapides – Goldman Sachs & Co. Got it. Thank you, Steve, and much appreciated. Lynn J. Good – President and Chief Executive Officer Thank you. Operator Next question comes from Jonathan Arnold with Deutsche Bank. Lynn J. Good – President and Chief Executive Officer Hi, Jonathan. Jonathan P. Arnold – Deutsche Bank Securities, Inc. Good morning, guys. Steven K. Young – Executive Vice President and Chief Financial Officer Good morning. Jonathan P. Arnold – Deutsche Bank Securities, Inc. Sorry to revisit this, but you’ve said a couple of times, you want to be clear about and transparent about what you’re saying on growth. And I just on this – we’ve already talked about the footnote on the slide around long-term earnings growth. You also changed the word you’re using from deliver to target. And I’d hate to read too much into that, but I just – Lynn, are we saying that if International kind of doesn’t rebound post-2015 in a decent way that you may not be able to stay at the low end of the 4% to 6% or are we not saying that? I’m not feeling I heard the clarity. Lynn J. Good – President and Chief Executive Officer Yeah. And you know, Jonathan, I’m not trying to reset guidance range at this point. But I am trying to flag for you that we see uncertainty in the International business that is difficult sitting here in early August of 2015 to predict duration and extent. And so, a rebound, if we see a rebound in 2017, that’s certainly positive. But it’s more challenging today than I would have said to you it was in January of this year and that’s what we’re trying to signal or trying to say. And we’ll continue to update you as we see rainy season starting to develop and we see any potential changes in the regulatory scheme, the injunctions and other things, but it’s more challenging based on what we see right now. Jonathan P. Arnold – Deutsche Bank Securities, Inc. Great. Thank you. And again, apologies for the revisit. Lynn J. Good – President and Chief Executive Officer No. That’s fine. Great. Steven K. Young – Executive Vice President and Chief Financial Officer All right. Operator Next question comes from Ali Agha with SunTrust. Ali Agha – SunTrust Robinson Humphrey Thank you. Good morning. Lynn J. Good – President and Chief Executive Officer Hello. Steven K. Young – Executive Vice President and Chief Financial Officer Good morning. Ali Agha – SunTrust Robinson Humphrey Hi. Listen, with regards to the securitization proceeds, Steve, you said half of them will be used for OpCo debt reduction, half going to the parent. Any thoughts on how that other half gets used? The reason I ask is on the original settlement agreement you were going to be earning an ROE on it, granted it was a 30% reduction, but there was earnings coming from that and so is there a dilutive potential given securitization that may not have been part of the original plan. Is that a fair way to think about this? Steven K. Young – Executive Vice President and Chief Financial Officer You’re correct there. We are giving up the equity return that was baked into the Crystal River 3 recovery mechanism from the settlement in 2013, albeit it was a haircut return. Whether it’s dilutive or not depends upon the redeployment of the proceeds here. And again we will be looking for growth opportunities to help replace that equity return loss. Ali Agha – SunTrust Robinson Humphrey So at this point you would not assume that that is used for any HoldCo debt reduction. It probably goes into some rate base kind of investment? Steven K. Young – Executive Vice President and Chief Financial Officer Well, it will move into our general funds and help fund growth. Ideally we’d like to find an investment to put it right into, but certainly it will be utilized to reduce HoldCo debt that then helps fund other acquisitions, other purchases, other investments more efficiently. Lynn J. Good – President and Chief Executive Officer And Ali, what I would say to that, we haven’t earmarked a specific investment for those funds, but there have been a lot of questions today about holding company capacity for additional investment, this would be part of that. And so our objective will be to deploy that in a way that maximizes the value. Ali Agha – SunTrust Robinson Humphrey Yeah. And Lynn, what’s the latest on the Edwardsport investigation in Indiana? Is that still out there? I thought it should have been done by now. What’s the latest? Lynn J. Good – President and Chief Executive Officer So there is a rate proceeding in front of the Indiana Commission, Ali, on the regulatory every six month rider mechanisms as well as the fuel clauses. And we would expect an order from the Commission before the end of the year, perhaps even as early as the third quarter. So, that does remain out there. In the slide deck we’ve given you kind of a chart of what the open proceedings are, I think it’s on slide 21 just to give you a sense of where these are. Ali Agha – SunTrust Robinson Humphrey Okay. Yeah, I thought it was a summer timeframe, I guess it’s a little later. Lynn J. Good – President and Chief Executive Officer I think it’s a little later. Yeah. Ali Agha – SunTrust Robinson Humphrey Okay. And last question, the timeline for some of you investments, you’ve made that investment in the pipeline and you’ve got the other bigger pipeline out there. Are you thinking, Lynn, when you update your long-term growth rates perhaps next year, that you may stretch it out over a five-year period as opposed to the three-year periods that we’ve been doing currently, given that some of the stuff won’t hit until later in the decade? Lynn J. Good – President and Chief Executive Officer Ali, it’s a good question, we debate the period internally. We had a longer term one, we moved it to three years, five years is a possibility. But I think the point you’re making is a good one, which is infrastructure investment occurs over a longer period of time. So, we haven’t made a final decision on that, but we are – we will evaluate it. Ali Agha – SunTrust Robinson Humphrey Okay. Thank you. Lynn J. Good – President and Chief Executive Officer Great. Thanks so much. Operator And ladies and gentlemen, that does conclude today’s question-and-answer session. I’d like to turn the conference back over to Ms. Lynn Good for closing remarks. Lynn J. Good – President and Chief Executive Officer Thanks, everyone for being on the call, for your interest and investment in Duke Energy. We are scheduled for a third quarter call on November 5, and look forward to seeing many of you in the coming months. Thanks again. Operator Ladies and gentlemen, that does conclude today’s conference. We do thank you for your participation. You may now disconnect. Have a great rest of your day.

Laclede Group’s (LG) CEO Suzanne Sitherwood on Q3 2015 Results – Earnings Call Transcript

Laclede Group, Inc. (NYSE: LG ) Q3 2015 Earnings Conference Call August 5, 2015 9:00 AM ET Executives Scott Dudley – Director-Investor Relations Suzanne Sitherwood – President and Chief Executive Officer Steve Rasche – Executive Vice President and Chief Financial Officer Analysts Dan Eggers – Credit Suisse Spencer Joyce – Hilliard Lyons Selman Akyol – Stifel Operator Ladies and gentlemen, thank you for standing by. And welcome to the Laclede Group’s Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Scott Dudley, Managing Director, Investor Relations. You may begin your conference. Scott Dudley Thank you and good morning, welcome to the Laclede Group earnings conference call for the third quarter of fiscal 2015. We announced our financial results this morning and you may access the news release on our website at thelacledegroup.com, and you can find that under the News Releases tab. Today’s call is scheduled for up to an hour and will include discussion of our results, and question-and-answer session. Prior to opening up the call for questions, the operator will provide instructions on how you may join the queue to ask a question. Presenting on our call today are Suzanne Sitherwood, President and CEO; and Steve Rasche, Executive Vice President and CFO. Also in the room with us is, Steve Lindsey, Executive Vice President and Chief Operating Officer of Distribution Operations. Before we start, let me cover our Safe Harbor statement and discussion of our use of non-GAAP earnings measures. Today’s earnings conference call, including responses during the Q&A session, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements speak only as of today and we assume no duty to update them. Although our forward-looking statements are based on reasonable assumptions, various uncertainties and risk factors may cause future performance or results to be different than those anticipated. A description of the uncertainties and risk factors can be found in our annual report on Form 10-K and quarterly report on Form 10-Q, which will be filed later today. In our comments, we will be discussing financial results in terms of net economic earnings and operating margin, which are non-GAAP measures used by management when evaluating the company’s performance. Net economic earnings exclude from net income, the after-tax impacts of fair value accounting and timing adjustments associated with energy-related transactions, as well as the impacts related to acquisition, divestiture and restructuring activities, including costs related to the acquisition and integration of Missouri Gas Energy and Alabama Gas Corporation. Operating margin adjusts operating income to include only those costs that are directly passed on to customers and collected through revenues, which are the wholesale cost of natural gas and propane, as well as gross receipts taxes. A full explanation of the adjustments and a reconciliation of these non-GAAP measures to their GAAP counterparts are contained in the news release we issued this morning. So with that, I’ll turn the call now over to Suzanne. Suzanne Sitherwood Thank you, Scott, and welcome everyone. I’m proud to report we turned in another quarter of solid performance, as we continue to execute on our growth initiative. I’ll begin with the quick summary of our results and then I will provide an update of other items related to achieving our strategic objectives. Steve Rasche will follow me with a more detailed discussion of our operating results and financial position, as well as some commentary on our outlook. This morning, we reported net economic earnings at $0.25 per share for the third quarter and $3.56 [ph] per share for the nine-month period. Steve will discuss the details in a moment, but I’m pleased to note that these results are in line with our expectations and we remain on track to achieve our growth target for the year. At the AGA Financial Forum in May, we had an opportunity to meet with many of you to discuss our achievements relative to our strategic growth initiatives. I like to spend a few minutes recapping that discussion and providing a few updates. We remain focused on transforming our business and continuing to deliver long-term growth by executing on the four pillars of our strategy. First, we are growing our core Gas Utility business through investment and further pipeline infrastructure upgrades and organic growth initiatives. Second, as we demonstrated, we are growing to acquire another gas utility and successfully integrating them to create value for investors, customers and the communities we serve. Third, we are working to further leverage our natural gas industry expertise to optimize our current and future investments in natural gas transportation, source and supply assets across both our regulated gas facilities and our gas marketing business. And fourth, we are investing in innovation and emerging market. I’ll start with our initiatives to grow our Gas Utility business. As you know, a significant driver of growth for our Gas Utility businesses is capital investment, particularly for upgrade to our distribution infrastructure. In 2015, we have continued to ramp up our pipeline replacement efforts across both Missouri and Alabama. Our commitment to prudent investment in our infrastructure is designed to improve safety and reliability, while lowering operating cost. As far this year, we have invested more than $200 million in capital and we remain on track for approximately $300 million we spent for the full year with a little more than half of this total dedicated to infrastructure upgrade. Our 2015 plan in perspective, for fiscal 2014, our capital expenditures were about $170 million and the very [ph] the Infrastructure System Replacement Surcharge or ISRS provides us with a more timely regulatory recovery of our prudent infrastructure investment. Effective May 22, the Missouri Public Service Commission approved an annual increase in ISRS of $5.4 million for Laclede Gas and $2.8 million for MGE. On Monday of this week we filed for additional ISRS to cover our investments for the period running from March 1 to August 31. The filing requests $4.3 million from a fleet gas and $1.8 million for MGE. We expect that approved amount to be effective later this calendar year. We are also seeing results from our organic growth initiative, targeting increasing revenue and margins while also improving our cost efficiency. We have been testing the growth potential on the various markets we serve, starting with St. Louis and Kansas City, and learning from Alagasco’s experiences. In LA, we are getting back to the basics [ph] of understanding our customers and their energy needs and identifying opportunities to better serve them. In doing that we are striving to grow our customer base and [indiscernible] and improve the retention of existing customers in both traditional and creative ways. Our initial focus area has been to deal commercial and industrial loans conversion from alternate fuel. While I can’t state to specific customer, I’m proud to say we are running success in converting several industrial customers to natural gas, representing a meaningful amount of incremental margin. And I would note that we are seeing modest customer growth across our entire gas facility footprints. We are also now pursuing service extensions within our franchising areas and acquiring integrating gas facility. As we work to grow revenues and margins, we are offset for greater cost efficiency and how we serve our customers. We are deploying enhanced technology and communications tool to improve the quality of the interactions we have with our customers and to ultimately deliver service more effectively. We are also leveraging our shared services model and looking for and stocking process improvement across our organization. These initiatives are tied in part to our integration efforts for MGE and Alagasco. As I mentioned last quarter, we’re nearly complete with the integration at MGE with final item, system implementation next month and our integration work at Alagasco is well under way. Now let me turn to optimizing gas supply assets. As I narrated last quarter, we have undertaken a thorough evaluation of our mix with natural gas stores, transportation, and supply assets to ensure we have diversity to access to gas supply from various states and transportation sources. Due to the introduction of Shell Gas, such an evaluation should improve diversity and the liability for years to come. We started this effort in Eastern Missouri evaluating access to Shell Gas in the Northeast supply basin and Western Missouri and Alabama are earlier in the process. However, by the end of the calendar year, we expect to be in a position to outline some initial step we will take to realize value both for our customers and shareholders. Now, I’d like to close on positive merits. Last week, Laclede Board of Directors declared a common stock dividend of $0.46 per share, payable October 2. This is the same quarterly rate declared since the annualized dividend was increased 4.5%, effective January 2. We are proud of our track record applied in consecutive years, I mean keeping dividend, as we continue to make good on commitments to deliver a shareholder value. With that, now let me turn the call over to Steve Rasche to review our third quarter results. Steve? Steve Rasche Thanks, Suzanne. Good morning, everyone. We announced three quarter earnings earlier this morning that came in to the top end of our expectations, due to timing and a slight improvement in our income tax rate. Let me take a few minutes to review those results with you and talk a little bit about the rest of this year and 2016. Starting with the third quarter results, total operating revenues were just over $275 million, up 14% from last year. Operating margins or earnings contribution after gas cost and gross receipt taxes of $177 million was 36% higher than last year. Our business segment, Gas Utility margins of $173 million were up $50 million from last year, as the addition of Alagasco contributed $54 million in margin, while the operating margin of our Missouri utilities, declined by $4 million. This decline reflects interest revenues that were higher in the quarter, but they were more than offset by the change in Missouri Gas Energy’s rate design. As we noted in previous quarters, MGE’s rates now include a variable user space component, which has shifted the margin into the first and second quarters of the fiscal year and decreased margins in the third and fourth quarters. Gas marketing delivery operating margins of $3.1 million down from $6.5 million last year, this decline reflects the return of normal weather and market conditions in the Midwest, as compared to the higher volatility and wider price differentials prevalent in the prior year. Remember that last year the overall market was recovering from the record cold winter of 2014 and the market dynamics were still working to return to the new normal, so to speak, that we are seeing again this year. Returning to the income statement, other operations and maintenance expenses of just under $91 million include the benefit of $7.6 million nonrecurring gain on sale of utility’s property, related to the consolidation of our St. Louis offices. Excluding that gain, run rate operating and maintenance expenses of approximately $98 million or $25 million higher than last year, reflecting; first, the addition of Alagasco, which added roughly $36.5 million to O&M cost and second, lower expenses at Missouri utilities, driven by lower bad debt expense, lower labor costs, offset in part by higher integration expenses. Depreciation and amortization of $32 million was up $14 million from last year, with $12 million attributable to the addition of Alagasco and the remainder reflecting the higher level of capital spent in the last 12 months. Taxes other than income of $26 million were up $4 million, reflecting mainly the addition of Alagasco, offset in part by lower Missouri gross receipt taxes. Interest expense for the quarter of $18 million was higher year-on-year by just under $7 million and reflects the debt assumed and issued in conjunction with the Alagasco acquisition. Income tax expense was $4.6 million, compared to a net tax benefit in 2014. The effective rate for the current year now stands at 31.6%. And the provision for the quarter reflects the year-to-date change to that new run rate. During the quarter we filed our annual income tax returns and recognized the onetime benefit associated with the retroactive components of the tax extenders that were passed in late 2014. We anticipate our full-year effective tax rate to remain close to this run rate. The resulting GAAP net income for the quarter was approximately $14 million or $0.33 per diluted share. Net economic earnings for the quarter were $11.1 million, down from $14.5 million last year. As noted in our press release, our net economic earnings this quarter, excludes that gain on sale of property and after tax benefit of $4.7 million, to provide a truer picture of our run rate earnings. Looking at the earnings by segment the Gas Utility segment delivered net economic earnings of $16.5 million, compared to $13.3 million, a year ago. This increase reflects the additional earnings from Alagasco and the increase in [indiscernible] revenues offset in part by the impact of MGE’s rate design change. Gas marketing earnings are $0.5 million, down from $1.9 million last year reflect the change in market conditions I noted a minute ago. Other net cost in 2015 of $5.9 million reflect primarily the interest cost associated with the lead group debt issued to finance the portion of the Alagasco acquisition. On a per share basis, third quarter net economic earnings were $0.25 per diluted share, compared to $0.44 per share last year. This comparison reflects the change in the quarterly distribution of earnings, as well as the weighted average impact of the additional 10.4 million shares issued to finance the Alagasco acquisition, last year. Let me turn briefly to our year-to-date results. Overall net economic earnings for the first nine months of our fiscal year were just over $154 million or $3.56 per share. This compares to the prior year earnings of $102 million or $3.12 per share. This increase of nearly $52 million is due to growth in our Gas Utilities segment reflecting not only the addition of Alagasco, but also growth of our Missouri Utilities. Gas marketing earnings were lower than the last prior year period due to more favorable weather and market conditions in the prior year. Switching to cash flow statement, cash provided by operating activities for the first nine months of 2015 essentially doubled from a year ago to $366 million. Alagasco added $120 million of that operating cash flow and the remainder reflects favorable timing of collections the Missouri cost under our purchase gas adjustment cost, as well as lower inventory values. And as Suzanne mentioned, year-to-date capital expense was nearly $203 million up more than $93 million from last year with approximately $57 million of that increase attributable to Alagasco and we remain on track for our targeted capital spend $300 million this year. Our balance sheet at June 30 remains very strong with solid long-term capitalization of 51% equity and 49% debt. And short-term borrowings were approximately $211 million down from last quarter, reflecting our ongoing plans delever the business. Our liquidity remains excellent and we have ample capacity in our credit facilities and commercial paper program. During the quarter, we finalized our private placement of two tranches of Alagasco senior notes. These notes will fund later this calendar year to better match our seasonal cash dues [ph] with $35 million in ten-year notes with an effective interest rate of 3.2% funding on September 15, essentially replacing a similar north of high rate notes that we called in January of this year. In addition, we will plan $80 million in 30-year notes and an effective rate of 4.1% on December 1, and current with the maturity of life amount of debt that carries an interest rate of approximately 5.4%. In both instances our customers in Alabama will benefit from the lower interest rates since interest expenses recovered currently and trued up quarterly. Looking out to the rest of the year, our results continue to demonstrate the success of our growth strategies and we remain on track to meet our full year 2015 earnings targets. As a reminder, due to the change in MGE’s rate design, and the acquisition of Alagasco, our distribution of earnings becomes more seasonal and as a result we anticipate an operating loss in the fourth quarter, hot summer season in our service territories. We anticipate our fourth quarter loss being higher than last year and a little above the top end of the 9% to 11% range of full year net economic earnings per share we first introduced last fall. These expectations reflect the adjustments I noted earlier for a slightly lower effective tax rate and the timing of operating and maintenance expenses in the fourth quarter. Again, putting all this together, we remain on track for meeting our commitment of growth in 2015 above 6% after moving last year’s gas marketing weather benefit. And we’re already well into preparing for fiscal 2016, especially our budget and long range of plan. All are on track with our long-term EPS growth target up 4% to 6% and the expectation that 2016 will again be above that range. I would also note that as part of that detailed planning process we are assessing the launch of more formal, annual earnings guidance. More later as we complete the hard work internal with our team to get our 2016 plans in place. Now, let me turn it back over to you Suzanne. Suzanne Sitherwood Thanks, Steve. So summarize, we continue to execute on our strategy and delivered results in line with our expectations, including our earnings per share growth target. We are executing well and we continue to transform Laclede to effectively integrating and bringing together our utility companies and improving the business models of our non-regulated businesses. This transformation includes the shift in our corporate culture to reflect where we are today, a larger, growing company, to serve gas utility customers across two states and provide other gas services across the Midwest and other parts of the country. We continue work to build stronger connections and communications at all of our constituencies, sharing our changes and our plans. Our recent AGA presentation had simplified they’re reflected truly are the company. The slide depicts the community with a description, the description is energy exists to help to live their lives, relative businesses, advance the community. This is simple idea that had won the heart of our business. In that spirit I offer things are more than 3,000 employees for their commitments through our simple idea. And months ahead, you can expect that we will continue our efforts to focus and solidify our emerging messages to our stakeholders, and continue to deliver on our product. Operator, we are now ready to take questions. Thank you. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from Dan Eggers with Credit Suisse. Dan Eggers Hey, good morning guys. Hey, good morning, sorry about that. Just a couple of questions, Suzanne you’ve made mentioned to the Muni system acquisitions or something about Muni’s in your prepared remarks. I just wanted if you could just, maybe elaborate a little bit more on that or tell me if I just misheard you? Suzanne Sitherwood Here I’ve given a little bit more expansion regarding organic growth. We’ve shared just a couple of calls ago, we had hired our Vice President of Organic Growth, and he’s done a lot of preliminary work in terms of areas that we should be focused on. And one of those areas on the resistible [ph] and also with the acquisition of Alagasco, there’s several municipals [ph] on that scale, as well as even some in Missouri too. We are just focused right now on understanding who they are and we also think about it in terms of all the pipeline regulations and Steve Lindsey is at the table and he can talk a little bit more that if you’d like but some of these municipals are actually reaching out to gas company because they have a stronger need in understanding what [indiscernible] and Steve if you want to add. Steve Rasche I think we’re [indiscernible] exactly where we’re really seeing a trend nationally that has enhanced pipeline safety regulation moving at the place. Some of these near to operators are looking for business either in the operation or exist in more perhaps concluding divesting our existing system. So we are out in market, we’re making ourselves available to have discussions with those long [indiscernible] and we do these as part of our organic growth. Dan Eggers Again we’ve in the water space where it makes tremendous amount of sense for the communities probably to be selling their systems because of the capital obligations and operational challenges, yet they seem not to show a whole lot of willingness to do it. As you guys are kind of looking into this, are you seeing interest either from the communities [ph] or the people in the communities would suggest, this is something you guys get yourself more actively involved in? Steve Rasche Well, yes, I think again as you mentioned some of the operational characteristics of the system have changed, as well as leadership looking at different municipalities. So I think again, our overall work right now is to evaluate where those opportunities to exist, have those discussions, and if those opportunities present themselves be ready and take a little bit more of a proactive approach that we have in the plans. Suzanne Sitherwood And you know what are the plans is, capital constrains, some of the communities have, especially coming out of the sort of the 2008 recession period and then you layer on this additional on Federal regulation. I still have the volume capacity and other capital resources to terms to you. So that’s part of what’s driving interest to your point. Steve Lindsey Do you think this is – is there an opportunity to kind of be a manager of their systems instead you get paid in a little capital way, you pay their management fee effectively to run it for them without having to do a lot of balance sheet work necessarily? Suzanne Sitherwood I guess I repeat we keep our mind open to you what the interest about, if we go to municipalities and for the Public Service Commission. I think if you will the commission really transactions in different way that we will keep our minds regardless taking the liabilities to the help of that system and our ability to evaluate with the extremely important. And then, secondly how we work with the regulators to get the – it’s a right way to transition that principle into the gas company that works for customers and our shareholders, and there [indiscernible], but we’ve done a lot of homework and we feel pretty confident about our approach. Dan Eggers This is Andy, I think this is the fiscal year 2016 event where we’ll start to see something converter how long [indiscernible] take to make sense of this from our perspective? Suzanne Sitherwood I think the few line items on organic growth, I’m trying to give into the [indiscernible] in terms of mix evaluation clearly wanted to the pillars and we’ve done a lot of analysis regarding to municipals that are in Missouri as well as Alabama and we have – they are working out in the field. So, I guess, time will tell that definitely something that we studied well and we are out looking. Dan Eggers And I guess, probably on the organic front you made mention of kind of looking at your share for shale related infrastructure and that sort of thing. Can you just maybe explain a little bit what the thought process is there? And I guess the timing is you give an update at the end of next quarter’s call up your fiscal year end? Suzanne Sitherwood It’s correctly. You did hear that correctly. So we embarked under my guide by heart leadership as Senior Vice President of Corporate Development Strategy. We started evaluating all the upstream asset that are prior actually to closing Alagasco for our considering utility and we were looking at the historical supply, transportation and stores contracts and sources for serving our customers. So we started evaluation process on how long they service regarding the liability for our customers on the short term and the long-term. As you know again with the introduction of shell gas in the various basement and there is attributes for these basements. As you know that changed the market, as well as the pipeline respond to those supply basements. So I believe and my colleagues believe the responsibility for us to embark on this evaluation, we started in eastern part of the state and we split up for a lot of the modeling therefore physical and logical modeling are now starting to same sort of western side of the state in Alabama and because we’ve started earlier with eastern side in more sophisticated, I mean reliability and then you layer on commercial availability you want some of their supply transportation services pipeline and go forward it. And that some of what you will hear an update for the end of next quarter. Dan Eggers Okay, great. Thank you guys. Suzanne Sitherwood Thank you. Operator Your next question comes from the line of Spencer Joyce with Hilliard Lyons. Spencer Joyce Steve, Suzanne, and Scott good morning, how are you? Steve Lindsey [Indiscernible]. Suzanne Sitherwood Good morning. Spencer Joyce Steve. I like that teaser on the guidance. We are all eagerly weighted queue for now. Steve Lindsey [Indiscernible]. Spencer Joyce Just a quick one here. Steve refreshes on the timing for that reallocation of the earnings kind of across the quarters, those rate structure changes will have anniversary like as of Q4, is that right. So we should have a pretty clean year kind of in the rear view mirror as of next quarter. Steve Lindsey We should but Alagasco will not have been in the mix last year cause you might recall close on that at the end of August. So we kept it out of our net earnings for the full year or so, if that and Alagasco is more seasonal due mainly to the fact of the geographies that it’s providing a natural gas. And so the fourth quarter will still be a little bit kinky, what I would suggest, Spencer is go back to the guidance that we talked about earlier in the year and I did talk about on the call and talk about on the call and we kind of give ranges of the earnings by quarter and that range that we gave for the fourth quarter was a loss of between 9% and 11%. And as I just mentioned, we expect to be a little bit above that range. So a little bit higher than 11%, I mean the loss for the quarter and that’s really timing of expenses as much as it is the change in the seasonality. But I would say that once we get beyond this year that I think we should have a reasonable cadence to work through, as you look at 2016 and beyond. Spencer Joyce Okay, great. So maybe one more kind of noisy or kinky quarter there and that we should be pretty clean? Steve Lindsey Yes, it is real hard. Not to make it noisy and comfortable for you. So – Spencer Joyce Yes, well, I know you all did a great job closing those acquisitions right at the end of the year, which made it nice to work with. Turning up to the income statement, the gain on sale from this quarter was that baked into the O&M line, was that a offset O&M expense or was that in the other income line? Steve Lindsey That was in the O&M expense line and you’d want to take out that $7.6 million essentially reduction in operating expenses in order to get to a better run rate. Spencer Joyce Okay, perfect that’s – and I think that was in the release. I just want to make sure I was understanding that right, that’s kind of a large item. Finally for me, on the corporate overhead and sort of the other unallocated expense or earnings line, we’ve obviously seen some wider losses this year, but I’m assuming that should peak somewhat for full year fiscal 2015, and then perhaps draw down a little bit moving forward. Is that kind of, I guess qualitatively the right way to think about those, the other segment, if you will? Steve Lindsey Yes, the other – the magical all other categories is everything that doesn’t set it nice and uniquely into a segment. And you’re right, the vast majority of those expenses are interest expense on the Group debt that we should financially, Alagasco transactions. So, and those are all, mostly at fixed rate some at variable rate, but short-term variable rate, so I until we start retiring that debt, that will be a fairly static number by quarter-to-quarter basis. There is a small amount of what I’ll call unallocated corporate costs that would also fall in that category. Those don’t generally vary much on a quarter-to-quarter basis, a little bit more this quarter because of some integration costs but we would pull those out for an economic earnings purposes. So, I think over time Spencer, as we start delivering the business and we know that in 2017, we delever the business with the – unit mandatory’s, liquidating at least the equity forward component those liquidating. That will definitely see change and the interest component in that other category. Aside from that is probably has a bit more flattish going into 2016. Spencer Joyce Okay. Perfect. So now – a potential drawdown talking point in 2017, but before that you’re looking kind of flattish. Steve Lindsey Yes. Spencer Joyce All right. Nice quarter, that’s all I have. Steve Lindsey Thanks, Spencer. Operator Your next question comes from the line of Selman Akyol with Stifel. Selman Akyol Thank you, good morning. Suzanne Sitherwood Hey, good morning. Selman Akyol A couple of quick questions. On your acquisition related expenses from Alagasco, how much longer do you expect those to be running through? Should we expect to see this continue to bleeding to 2016 as well? Steve Lindsey Yes, we do. We typically look on a broad brush Selman, when we look at integration. It’s generally a two to three-year program, if we look at MGE and that’s a really good marker to take a look at. We do anticipate there being some cost next year which would be the third year of that acquisition. Remember, we’re only coming up on the first anniversary of Alagasco. And as Suzan mentioned in our prepared remarks, we are now implementing the integration plans. So, we would clearly expect those integration cost to continue through 2016 and then perhaps some into 2017 at Alagasco. At that point, probably not much from MGE going forward. Selman Akyol All right. And then I think you said before that MGE was a good marker and maybe up to $20 million of integration expenses there, am I remembering that correctly? Steve Lindsey You are, and that was our original transaction cost guidance and we came in well underneath that. Our integration costs for MGE are running at a level significantly below that. In fact, if you give me just a second here because we do disclose that information every quarter, I’m not sure if I’m going to get it to – I will get it to you separately if I could – Selman Akyol Okay, we can follow-up offline Steve Lindsey Yes. Selman Akyol But so I’m just taking back 2016 in terms of Alagasco, should we expect sort of similar run rates to 2015 or is the bulk behind that is very just kind of quantify that? Steve Lindsey I would suspect that just as with MGE, you’re going to see a fairly consistent run of cost, they run into different categories, depending upon what’s driving them. So I would suspect we’ll see a similar level as we go through 2016 and that embraced our tailing off as we get to 2017. Selman Akyol Great, I appreciate that. And then just looking at the CapEx expenses, I clearly understand what’s being spent in Missouri, can you go through with the $56 million, where that’s being spent for Alagasco? Steve Lindsey Over a half of it was pipeline replacement and that’s clearly what our goal is in fact if you look into 2016 and beyond, we would expect that number to even go a little bit higher. So in terms of the fully 50 – 30 or almost two-thirds of that amount is either pipeline replacement or other things that would be directly associated with pipes or new customers. And then this year, and we see the same thing happening in St Louis or in Missouri, as we do have some facilities costs that are coming in this year, that’s about $10 million at Alagasco this year which we wouldn’t expect to recur next year. From our pipeline replacement perspective, all the three utilities will be at or above the level they were at last year. So we are managing holistically and at Alagasco, there is one large infrastructure expansion and as a surprise or improvement that this year, so that in other major pieces, what’s going on in 2015 Selman Akyol All right. Last one for me on still on the CapEx, $300 million for this year, roughly split two-thirds between Missouri and one-third for Alagasco? Steve Lindsey Yes, sir. Selman Akyol Got it. All right. Thank you very much. Suzanne Sitherwood Thanks, Selman. Steve Lindsey Thanks, Selman. [Operator Instructions] At this time we have no further questions. Management, I’m turning this back to you for closing remarks. Scott Scott Dudley Great, thank you all for joining us and will be available throughout the day for any follow-ups. Thanks for joining us. Operator This concludes today’s conference call. You may now disconnect.