Tag Archives: utility

3 Utility ETFs Suffering From Rate Hike Worries

Banking on strong recovery in the U.S. economy, analysts are expecting a possible rate hike in September or October this year. Meanwhile, rate hike worries have been weighing on the major benchmarks. Recently released economic data including construction spending, auto sales and job number all came in on the strong side. These have elevated the rate hike possibility further. Strong Economic Recovery After having a dull first quarter, the economy rebounded strongly in the second as indicated by several economic data. The Fed also remained optimistic about a recovery in the second quarter based on strong labor and housing data. According to the U.S. Labor Department, the U.S. economy created a total of 280,000 jobs in May, witnessing the largest job addition since December 2014. Though the unemployment rate marginally rose to 5.5% in May, the rate is expected to decline gradually to Fed’s target this year. The average hourly wages also witnessed a strong year-on-year gain of 2.3%. Among other major economic data, the U.S. Department of Commerce reported that construction spending surged 2.2% in April, its fastest pace since May 2012. Also, most of the major housing data showed that the housing market recovered strongly in April. Meanwhile, U.S. light-vehicle sales gained 1.6% year over year to 1.63 million units last month, witnessing its best May ever in terms of light vehicle sales. Rate Hike Worries Strong economic data indicates that the economy is back on track in the second quarter, leaving behind the first-quarter contraction. This raises the possibility of a rise in interest rates, which have been near zero since the 2008 financial crisis. Before deciding on a rate hike, the Fed will closely watch the labor market situation and the inflation rate. However, the Fed remained “reasonably confident that inflation will move back to its 2% objective over the medium term”. The evolving macro environment points toward a possible rate hike in the not-too-distant future. Stock market investors are finding this prospect somewhat discouraging, which has been showing up in the market’s daily activity in recent sessions. Higher interest rates can make stocks less appealing and especially so in the dividend space. In this scenario, sectors including utilities that are expected to be affected by a rate hike have suffered heavily in recent times. 3 Utility ETFs Suffering The Utility sector is one of the most rate-sensitive sectors due to its high level of debt. Utilities are capital-intensive businesses and the funds generated from internal sources are not always sufficient for meeting their requirements. As a result, the companies have to approach the capital markets for raising funds. As a result, a rising rate environment may have a negative impact on this sector. Here, we highlight 3 utility ETFs that have suffered in recent times on rate hike worries. PowerShares DWA Utilities Momentum Portfolio (NYSEARCA: PUI ) This fund provides exposure across 40 securities by tracking the DWA Utilities Technical Leaders Index. Nearly 40% of total assets are allocated to the top 10 holdings. Sector-wise, multi-utilities take the top spot at 37.7%, while electric utilities and gas utilities take the next two positions. PUI has amassed $31.9 million in its asset base while it sees light volume of around 9,000 shares a day. The ETF has 0.60% in expense ratio and has declined 3.7% over the past one month. Guggenheim S&P 500 Equal Weight Utilities ETF (NYSEARCA: RYU ) This fund follows the S&P 500 Equal Weight Index Telecommunication Services & Utilities, holding 36 stocks in its portfolio. It is well diversified across its holdings with none of the companies accounting for more than 3.2% of the total assets. The ETF has been able to manage $128.3 million in its asset base and is moderately traded with more than 58,000 shares per day. It charges 40 bps in annual fees and expenses. The product has declined 3.2% in the trailing one-month period. iShares U.S. Utilities ETF (NYSEARCA: IDU ) This ETF provides exposure to 61 firms by tracking the Dow Jones U.S. Utilities Index. The fund has amassed $583.3 million in its asset base while it sees a moderate volume of around 417,000 shares a day. The product is largely concentrated in the top 10 firms that collectively make up for half of the basket. About 52% of its assets are allocated to electric utilities. The ETF charges a fee of 43 bps annually and has lost more than 2.9% in the past one month. Original Post

Why You Should Own Utility Westar Energy

As regulated assets increase with reduced debt and equity needs, the incremental earnings should improve overall ROIC. With the decline in share price since peaking in January, Westar offers an acceptable yield and low payout ratio of around 64%. Kansas has a neutral regulatory environment, but growth is pegged to FERC-regulated transmission assets. Westar Energy (NYSE: WR ) is a mid-sized regulated electric utility in the heart of the Midwest. The company service 700,000 electric customers in central and northeast Kansas. WR also has a relatively high 6,200 miles of transmission lines and seven power plants with generating capacity of 7,160MW. There is a lot to like about WR from a longer-view perspective. Over the past 5 years, stock price performance has kept up with the Dow Jones Utility Index (DJU) and outperformed the S&P Utility Index (NYSEARCA: XLU ). However, over the last 6 months, WR has performed worse than these indexes by losing around 12% vs. 5% for the overall peer index. Morningstar reports 1-yr total return at -1.0% vs. its regulated electric utility peers at 3.1%, 3-yr total return at 9.3% vs. 11.3% respectively, 5-yr return of 14.1% vs. 11.3% respectively, and 10-yr total return at 7.6% vs. 8.3% respectively. Below are 5-yr and 6-month price only charts: 5-yr 6-month Westar’s Equity Quality rating by S&P Capital IQ for 10-yr consistency in earnings and dividend growth is A-. This falls within the top 25% of all publicly traded utilities with 10 firms rated A+ or A, and 15 firms rated A-. WR has an average credit rating at BBB+. Westar has been investing in its regulated asset base for the past several years. While WR has one of the largest capital expansion programs of a utility its size, free cash flow has remained almost neutral over the previous 2 ½ years. Previous expansion of WR regulated assets is driving the current growth in operating cash flow. For example, in 2011 and 2012, WR invested a combined $1.5 billion but had operating cash flow of just a bit over $1.0 billion, generating a free cash flow deficit of $500 million. However, in 2013 and 2014 combined, WR invested $1.6 billion and its operating cash flow increased to $1.5 billion, reducing the free cash flow deficit to $100 million. Over the trailing 12 months, WR has invested $821 million while generating operating cash flow of $800 million, for a deficit of only $21 million. Morningstar’s analysis of this asset driven aspect for Westar: Between 2006 and 2013, Westar increased its asset base from $5.5 billion to $9.6 billion, and we expect that it could top $11 billion by 2017. Its equity base has doubled since 2007 with its investments in new power plants, environmental upgrades, wind farms, and large transmission lines. With cash flow tight, investors have had to settle for pedestrian 3% annual dividend growth. But as Westar’s investment pace slows and rate increases flow in, dividend growth should accelerate. In addition, as Westar’s investment mix shifts to higher-return transmission projects, earned returns and cash flow should grow. Westar is waiting on a decision on a rate case that could increase rates by an average of 7.0% to 7.9%, and would represent the first rate increase since 2012. Included in the rate request will be approval of $600 million in upgrades to coal plants for environmental investments and to its nuclear plant to expend its useful life. While the company is requesting a $152 million rate increase, it is likely the PUC will approve around $135 million. In dealing with the issue of distributed generation, WR’s rate request include higher fixed charges with the monthly fee increasing for $12 to $15 in year one and to $27 by year four. If approved, the rate plans would shift a greater percentage of Westar’s revenues to fixed monthly fees, which better reflects the utility’s cost to serve its customers. Kansas is considered by S&P Credit to be a neutral regulatory environment. The anticipated allowed ROE for its state-regulated assets will be set at 10.0% with the resolution of the pending rate case. About 18% of WRs asset base are federally regulated transmission assets with a higher allowed ROE of 11.3%, and some projects in central Kansas carry an allowed ROE of 12.3%. However, the Kansas utility commission has filed an appeal to the FERC to reduce transmission ROE to just below 10%. Westar has a growing transmission profile as transmission investments will be about a third of the firm’s total cap ex budget. Currently, transco assets account of about 18% of its total regulated rate base at $1.1 billion. The company is expected to almost double the transco base over the next four years by investing $225 million a year in this business. Westar’s service area is smack in the middle of the wind-generating corridor of the Midwest with an abundance of project to connect wind farms with several grid operators to the north and south. Westar is well-versed in the transmission business and has a joint venture with American Electric Power (NYSE: AEP ) and MidAmerican Utility. On a per mile valuation comparable to ITC Holdings, the major independent publicly traded transco, Westar’s current network could be worth about $2.5 billion, or about $20 a share. With a target growth in base assets of 18% to 20% annually, not only is the regulated transmission business more profitable, but also is gaining sufficient critical mass to be considered an independent company. With the industry on the cusp of financial engineering for transmission assets, Westar is well positioned. Westar operates in a stable economic environment as described in their fourth qtr. conference call: Turning to the Kansas economy, it continues to hum along. Year-end unemployment was just over 4%, a level not seen since 2008. And it remains 150 basis points favorable to the nation. Small business formation continues at a good pace with most of that right in our service territory. Recent articles have touted our part of the world. Topeka was recently ranked America’s top ten most affordable cities by livability.com and a new report by the Brookings Institute ranked Wichita, which is our largest city that we serve, third in the nation among top 100 metro areas for concentration of jobs in advanced industries. These instances and a state report showing a 6% increase last year in the number of new businesses registered validate our outlook for our Kansas economy that has a lot of offer. Westar has historically generated above average return on invested capital ROIC. In an industry where the average ROIC is between 4% and 5%, since 2004, WR has consistently generated ROIC in the 5.5% to 6.0% level. Below is a 20-yr ROIC chart courtesy of fastgraph.com. (click to enlarge) With a weighted cost of capital of 5.2%, as calculated by ThatsWACC.com, management has barely generated sufficient returns over its cost of capital. On the brighter side, there are utilities that generate negative Net ROIC. However, as regulated assets increase with reduced debt and equity requirements, the incremental earnings should improve overall ROIC. Westar is trading at a slight discount to its peers with a forward P/E of 13.7. Below is a table from morningstar.com reflecting higher operating statistics such as 3-yr revenue and net income growth and operating margins compared to industry averages. However, these attributes is not reflected in the share price. Source: morningstar.com Fastgraph.com historic graph suggests WR is fairly valued. At the end of 2014, the yield was 3.4%, but has improved to a more historic year-end average of 4.1% yield (the downside to the yield improvement was a decline in price). Dividend growth has been a bit shy of many in the utility sector but could ramp up as earnings continue to grow at 6% a year. With the financial troubles of the early 2000s, an annual increase in the dividend goes back only 10 years, a bit light for a utility with Westar’s roots. The low payout ratio of 64% allows management to increase the dividend faster than its underlying earnings growth without jeopardizing its financials. (click to enlarge) The June investor’s presentation is one of the most through descriptions of various aspects of their business. Even current shareholders should learn something new by reviewing the information and it is recommended reading. However, Westar has a bit of a tarnished history . In 2002, then-CEO David Wittig and his Chief Strategic Officer were fired for alleged financial improprieties and the company, then known as Western Resources, almost went bankrupt. Wittig was convicted in federal court of 39 counts of financial malfeasance in 2005, but it was over turned in 2007. Amazingly, Wittig settled with Westar in 2011 to the tune of $42 million in compensation and legal fees from an unjust termination dispute while his underling negotiated a $22 million deal. In recap, Westar offers acceptable historic returns based on its peers, high quality ratings, rising operating cash flow to fund aggressive regulated asset accumulation, pending rate relief, good regulatory environment, growing regulated transmission asset base, increasing economic environment, stable ROIC and positive Net ROIC with the potential for increasing returns. With a typical current utility yield, the potential for above-average dividend growth is also attractive. What’s not to like about that? Author’s Note: Please review disclosure in Author’s profile. Disclosure: The author is long AEP. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

OGE Energy’s (OGE) CEO Pete Delaney Discusses Q1 2015 Results – Earnings Call Transcript

OGE Energy Corp. (NYSE: OGE ) Q1 2015 Earnings Conference Call May 7, 2015 09:00 ET Executives Todd Tidwell – Investor Relations Pete Delaney – Chairman and Chief Executive Officer Sean Trauschke – President Steve Merrill – Chief Financial Officer Analysts Matt Tucker – KeyBanc Capital Markets Brian Russo – Ladenburg Thalmann Charles Fishman – Morningstar Michael Dandurand – Goldman Sachs Jay Dobson – Wunderlich Securities Anthony Crowdell – Jefferies Chris Shelton – Millennium Partners Operator Good day, ladies and gentlemen and welcome to Q1 2015 OGE Energy Earnings Conference Call. My name is Sandra and I am your operator today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now, I would like to turn the call over to Todd Tidwell. Please go ahead, sir. Todd Tidwell Thank you, Sandra. Good morning, everyone and welcome to OGE Energy Corp’s first quarter 2015 earnings call. I am Todd Tidwell, and with me today, I have Pete Delaney, Chairman and CEO of OGE Energy; Sean Trauschke, President of OGE Energy; and Steve Merrill, CFO of OGE Energy. In terms of the call today, we will first hear from Pete, followed by a regulatory update from Sean and an explanation from Steve of first quarter results. And finally, as always we will answer your questions. I would like to remind you that this conference is being webcast and you may follow along on our website at oge.com. In addition, the conference call and accompanying slides will be archived following the call on that same website. Before we begin the presentation, I would like to direct your attention to the Safe Harbor statement regarding forward-looking statements. This is an SEC requirement for financial statements and simply states that we cannot guarantee forward-looking financial results, but this is our best estimate to-date. I would also like to remind you that there is Reg G reconciliation for gross margin in the Appendix, along with projected capital expenditures. I will now turn the call over to Pete Delaney for his opening comments. Pete? Pete Delaney Thank you, Todd. Good morning, everyone and thank you for joining us on today’s call. We reported first quarter utility earnings of $0.09 a share, which is down slightly from $0.10 per share in 2014, but is in line with our 2015 full year guidance with utility. While these results are in line with plan, the vast majority of our earnings is we must always remember in the next two quarters. Consolidated earnings for the quarters were $0.22 per share compared to $0.25 in 2014 also in line with our previous guidance for the year. Compared to consolidated earnings, our cash distributions from Enable are a really more important metric to us, as regards to our financial plan. Enable quarterly distributions were $34 million in the first quarter, up about 9% from the initial distribution rate at the time of the Enable IPO last April. Despite the impact of lower commodity prices on the gathering and processing business, we do expect distribution growth from Enable to continue this year. While the economy – Oklahoma economy has been impacted of course by falling commodity prices, our service area appears to remain on sound footing. The local sector has seen job losses of about 8% since the start of ‘15. However, unemployment rate as of March 2015 for Oklahoma City and the state remains well below 4%, one of the lowest in the nation. And the utility continues to add customers at a rate consistent with our historical growth rate of 1% and that’s about more than 8,000 customers having added to the system since the first quarter of 2014. At the utility, the focus is on executing our environmental compliance plan and our activities related to leveraging our smart grid infrastructure to improve work processes, continue to drive operational improvements and enhancing the customer experience. Please report recent polling by J.D. Power indicates that our customer satisfaction remains one of the highest in the nation. Our compliance path for the Regional Haze regulations has been a long one. We, along with the Attorney General, as you know, chose to fight for the Oklahoma State Implementation Plan for Regional Haze that we believe is far preferable from a customer standpoint and is more in line with Congress’ original intent compared to the EPA’s federal implementation plan. Although we ultimately were unsuccessful in our appeals for the court system all the way to United States Supreme Court, our efforts along the way were supported by many in Oklahoma. We are now actively involved in the next step, which is recovery of our mandated environmental compliance costs before the Oklahoma Corporation Commission, a process that brings other parties, including our previous supporters, to opine on these plans. We believe that this is the first proceeding under the filing at the commission under House Bill 1910 that Oklahoma legislature unanimously passed a few years ago to specifically facilitate the recovery of costs associated with state or federal environmental mandates. Our efforts to mitigate customer impact continues and that is the primary driver behind our filing under House Bill 1910 that allows for pre-approval of mandated environmental costs and equipment rate base, spreading out the recovery of these items over several years as opposed to a one-time much higher increase. For the most part, our compliance plan, consisting of adding scrubbers to our coal units at the Sooner Power station and converting two of our coal units at Muskogee, while heavily scrutinized in the hearing process, had a few detractors. More concerns were expressed during the hearing process over our Mustang modernization plan. Part of our filing at the Oklahoma Corporation Commission utilized a provision of House Bill 1910 that provides for pre-approval of new generation capacity. In this case, we are seeking to replace the 1950 generating units at our Mustang site with new highly efficient responsive CTs. While replacement of the old units is not mandated by the federal government, we believe that the replacement is mandated by their age and current usage in the Day 2 market. The changes in this SPP market are having a profound impact on the operation of this early 1950s era plan. These units, for example, cycled 114 times in 2014 compared to 33 times during the previous 5 years. This exerts a lot of wear and tear on the units originally designed for baseload operations. Furthermore, on adding new units at the Mustang site, we will be able to utilize the existing air permits. In today’s regulatory environment, it will be very difficult to get new air permits for a comparable facility near the Oklahoma City metropolitan area. The regulatory environment at Arkansas appears to be improving with the passage of this legislative session of two constructive regulatory bills. We are very encouraged by the recently enacted environmental recovery statute and the formula ratemaking plan. We will file for recovery of our environmental costs in Arkansas early this month and look to file a general rate case in the near future. As you know, we have been under-earning in Arkansas for quite some time, but we are optimistic that the new governor and commission will provide mechanisms for us to close that gap. I continually highlight our efforts to leverage our smart grid investment in order to facilitate continuous improvement in our operations and drive even better customer experience. Operationally, this means we are storing power faster, reducing the frequency and duration of outages, as we saw from last month’s storm restoration efforts. Smart meter data is providing more accurate device location allowing us to send teams to specific locations for damage assessments versus sweeping entire circuit. Smart meter data also provides accurate real-time view of the current state of the system. From this information, we have been able to make process changes that allow for swifter and more accurate deployment of material, restoration and assessment resources. In addition, our new technologies allow for increasing power quality, improving the breadth of our connectivity with customer side devices, and increasing levels of customer engagement. Our SmartHours program, as an example, has been a great start. We have made great progress on delivering the right customer experience, but we are making further improvements through deployment of the technology and the work process that I talked about earlier. We are optimistic about improving the value proposition of our product, electric service, which should better position us to deliver value for our shareholders. We are off to a strong start in 2015 both operationally and financially. We know that the environmental case certainly creates an overhang for our investors. Our members have put forward a great effort in demonstrating great technical expertise in environmental compliance regulatory case in Oklahoma. Reliable operation of our system depends on us being to apply that expertise and making the tough investment decisions needed for the long-term benefit of our customers. Our environmental compliance plan will position our generating fleet well for the uncertainties of the future. From an OGE Energy perspective, the Enable distributions contribute significantly to our cash flow to support financing the environmental capital program and to accomplish our goal of growing the dividend 10% per year through 2019. Increasing distributions from Enable, while expected, is not required for us to meet our 10% dividend growth rate. Now, I would like to turn the call over to Sean to dig a little bit deeper into our regulatory. Sean Trauschke Thank you, Pete and good morning. Before we get into the environmental compliance effort, I think it is important to acknowledge the storms, which hit our communities last night, multiple tornadoes, high winds, significant rainfall, causing property damage, well closures and flooding and our thoughts and prayers go out to those communities impacted. We are busy on the restoration efforts and I am proud of the men and women who have been working safely through the night to restore the system and help the communities in which we serve. This is what we do. Pete gave a good overview on the history of the case. And now, I want to update you on what has happened recently. Closing arguments for the hearings on our environmental compliance plan took place yesterday and there were no surprises, as the parties reiterated their filed positions. We feel like our case is strong and non-compliance is not an option. Now, the proceeding goes to the ALJ and we hope to receive his report in June. And after that, it goes to the Commissioner for final approval. We feel like we have a very strong case presented by our very own experts. We are a company with a strong track record of success as we have been in business for 113 years. Our system is highly reliable. We have rates well below the national average, numerous customer satisfaction awards and a strong environmental track record. Turning to Arkansas, we will file for recovery next week with the Arkansas Commission under Act 310 and hope to begin recovery as early as the June billing cycle. Our filing will include our environmental expenditures to-date with the ability to re-file every 6 months as additional expenditures occur. As you know, Arkansas recently amended Act 310 accelerating recovery for mandated environmental compliance expenditures. We have not yet determined the timing of the general rate case in Arkansas, but are encouraged by the recent approval of formula ratemaking legislation, which could greatly reduce the under-earning in that jurisdiction. We were just in Arkansas a few weeks ago and met with the new Governor, the new Attorney General staff, two of the Commissioners and the Director of the Public Utility division and I will tell you we were encouraged. I am happy to report I heard a consistent pro-business climate being voiced in every meeting. Now, I will provide you with an update on our compliance progress today. Regarding the ACI systems for MATS compliance, we expect to finalize installation contracts this summer and construction will commence in the second half of this year to meet the April 2016 compliance deadline. Looking at the Regional Haze compliance plan, installation of the low-NOx burners is now complete on all of the coal units. We are in the permitting process for the remaining three units at Seminole and installation will begin on those units this fall and could be completed in the spring of 2017. The equipment and installation vendors for the two dry scrubbers at Sooner have been selected and the schedules and budgets are on plan. Engineering studies for the conversion of the two coal units at Muskogee are ongoing and expected to be complete by the middle of this year, with permit applications submitted to the Oklahoma Department of Environmental Quality in the second half of 2017. Recall, our plan is to continue to run these coal units as long as possible to maximize the benefit to our customers. Bids for the Mustang plant turbines have been received and we expect to finalize our selection this month. The turbine selection is important, because it is needed for the air permit application we plan to file shortly. Before I turn the call over to Steve, I would like to summarize by saying we presented a very strong case in Oklahoma and we are encouraged by what we see in Arkansas and operationally we are on plan. With that, I will turn the call over to Steve who will discuss the first quarter results. Steve? Steve Merrill Thanks, Sean and good morning. For the first quarter, we reported net income of $43 million, or $0.22 per share as compared to net income of $49 million, or $0.25 per share in 2014. You will notice that the holding company had earnings of $0.02 per share. This is primarily due to a gain from the deferred compensation plan and we are not projecting this to continue. The contribution by business unit on a comparative basis is listed on the slide. At OG&E, net income for the quarter was $17 million or $0.09 per share as compared to net income of $21 million or $0.10 per share in 2014. First quarter gross margin at the utility increased approximately $2 million, which I will discuss on the next slide. Looking at other key drivers for the quarter, O&M is on plan for the year. The first quarter variance was $3 million lower in part due to the timing of scheduled power plant maintenance. Depreciation increased $10 million primarily due to three large transmission lines that were added in the last 12 months part of the over $800 million of plant placed into service in 2014. Interest expense increased $3 million due to the $250 million debt issuances that occurred in both March and December of last year. Turning to first quarter gross margin, utility margins were up approximately $2 million for the first quarter of 2015 compared to 2014 despite significantly less favorable weather. Looking at the three primary drivers for the change in gross margin first was new customer growth, contributing $5 million, which did include one-time customer rate migration of approximately $1 million. We added over 8,000 new customers to the system as compared to the first quarter of 2014 growing at our historical rate of 1%. Second, changes in sales and customer mix added an additional $5 million. Finally, this growth was partially offset by mild winter weather as compared to the first quarter of 2014. This translated into $11 million of lower gross margin as heating degree days were 11% lower compared to the same time last year. Compared to normal, heating degree days were 2% higher and contributed $3 million of gross margin. For the first quarter of 2015, Enable Midstream made cash distributions of approximately $34 million to OGE and contributed earnings of $23 million or $0.11 per share compared to $29 million or $0.15 per share in 2014. The decrease is primarily due to lower commodity prices. Despite the current commodity price environment, Enable continued to grow their quarterly distribution rate. The second quarter rate increase recently announced was 1.2% raising the distribution to $0.3125 per unit. Overall, Enable has raised its quarterly distributions 9% since its IPO in early 2014. Turning to the 2015 outlook, guidance remains unchanged. This is based on assumptions set forth in our 2014 10-K. For the midstream business, we are projecting to receive approximately $140 million in cash distributions. Our cash flow position for 2015 remains strong and is key to our value proposition, which is growing utility earnings per share and utilizing our cash flow received from Enable to fund our capital expenditures and grow our dividend at 10% annually. This concludes our prepared remarks and we will now answer your questions. Question-and-Answer Session Operator [Operator Instructions] And your first question comes from Matt Tucker from KeyBanc Capital Markets. Please go ahead. Matt Tucker Hi, guys. Good morning. Pete Delaney Good morning. Matt Tucker Could you provide a little more color on the environmental costs that you plan to file for in Arkansas and also if could you elaborate a little bit on what you like about the new ratemaking process there? Sean Trauschke Sure, Matt. This is Sean. So, the filing that we are going to make next week in Arkansas is really to pick up the low NOx burners that are in service. To put it in perspective, it’s pretty small. It’s roughly $0.16 to the average residential customer’s bill per month. So, it’s really small. We haven’t really got too far down, but I think it’s a good way to begin that process. What we really like about the Arkansas legislation was two fronts. One, on their Act 310, which is the environmental mandates, they have expanded that to actually have a looking forward component to that, where you actually, these planned expenditures you could begin to file for that as well. We are not including that in this filing right now. The one we are going to make next week, we don’t plan to make this one, but we will pick that up on the next filing that we make six months from now. The other piece of that was the formula rate legislation and where they really tried to articulate a more prescriptive formula for not only determining the ROE, but determining the recovery of items and more of a formula plan to help reduce some of that lag. And we view this as positive there as well, but we also view the opportunity for us to address the hypothetical capital structure that is in Arkansas as well that causes us the most issue. Matt Tucker Okay, thanks. And then switching gears a little bit, it looks like from Enable within the contribution there, between the amortization, the basis difference and the elimination of the Enogex fair value, those items totaled about $8 million versus I think about $5 million last year. Is this a good run-rate to assume for these items for the rest of this year? Sean Trauschke Yes, it’s about $0.02 a quarter. So, the run-rate sticks around that. The $8 million is the better number. So, it’s about $0.02 a quarter is what you ought to assume. Matt Tucker Great, thanks. And then finally sorry to hear about the storms that hit your service territory last night, is it something that we should expect could create unusually large storm restoration costs for the second quarter or is this kind of consistent with these types of things are kind of common for the second quarter there? Pete Delaney Unfortunately, it is pretty common for the April-May timeframe. And so I don’t see any wild variance from previous years. Matt Tucker Got it. Thanks, guys. That’s all for me. Pete Delaney Okay. Operator Thank you. Your next question comes from Brian Russo from Ladenburg Thalmann. Please go ahead. Brian Russo Hi, good morning. Pete Delaney Hi, good morning Brian. Brian Russo I am just curious, how much are you under-earning in Arkansas and what percent of your rate base is attributable to Arkansas? Steve Merrill The rate base attributable to Arkansas is only about 7%. We are probably earning slightly below 7% at this time. So, we definitely are under-earning at that point, but it’s again only about 7% of our rate base. Brian Russo Okay. And Pete earlier you commented on customer growth and the unemployment rate in economy, just – what’s your outlook given what we have seen in the energy sector? Pete Delaney Yes. We – again, the numbers came out and we obviously especially in the more rural areas as opposed to our metro, with the field services and the contractors and the servicing companies got hit more so than the companies, there have some – been some layoffs in the metro area, but what we have seen is that a recycling. In other words, what we have – our employment rates has been so low. There has been businesses, their number one issue has been able to hire people, because of the low unemployment rate here. And what we have been seeing is that these businesses, the people that are no longer in the energy industry are finding jobs in other areas. We are also seeing our customer growth remains the same. We are seeing a lot of potential growth in some bigger loads. And so we haven’t seen any real – on a net basis, we haven’t seen any real big drops from specific plants. And if there has been one or two, we have got new plants coming in. So, everything really appears to – from the economy I think we maybe expected at this point to see little bit more softness than we have, but so it’s been holding. And we are very pleased to see how the economy is holding in there. So, it’s a little bit more diversified teams and I would say pent up demand in other areas seems to be keeping us on track. Brian Russo Okay. And then, it seems the House Bill 1910, the language is somewhat vague and that there seems to be a lot of different interpretations of it, with the testimonies filed in this compliance filing. And I am just curious, why should Mustang get a rider and why should a rider be granted outside of the context of a rate case, if you don’t mind? Sean Trauschke Sure. So, Brian, this is Sean. On Mustang, what we have decided there is we have gone through this. We see this opportunity there to preserve this vital site for the state. And these units we have talked before, how old they are, they were nearing retirement. Pete talked about their current cycling that’s actually accelerating their retirement dates as well. As far as the rider, the point is this is what we tried to do in our filing is we filed this with the commission to provide the opportunity. We suggest that they should look strongly at CWIP with the idea to minimize the rate impact. We also wanted to propose this rider for Mustang from a transparency perspective. They knew exactly where we were headed, what we were doing and give them the opportunity to begin a glide path on the recovery of those items as well. The other point is from your perspective as we go out and raise capital, you look at that, you value that risk proposition. So, if we were going to go out and sell securities to help fund that that helps. And so we thought that was a good way to lower the overall cost to customers and that’s what we were focused on. And we think it’s appropriate. It’s allowed under the statute and we think it’s a good idea. Pete Delaney Brian, we don’t know if you are referring to the different parts of that statute. And one part was for recovery of state and federal environmental and the other was for pre-approval of – clearly spelled out for new generation to be pre-approved by commission. And again, the legislature I think unanimously passed that bill. At the time people viewed, it made a lot of sense and so we are taking – we are going down that path. Brian Russo Alright, great. Thank you very much. Operator Thank you. We have another question for you and this comes from Charles Fishman from Morningstar. Please go ahead. Charles Fishman Thank you. I noticed the capital expenditures for environmental scrubbers are projected to – I can’t tell if it’s – the total amount has changed or it’s just an acceleration of the project and/or maybe you are refining some of the costs. Could you just explain what’s going on there? Steve Merrill Yes, this is Steve. Nothing has changed. That’s just the timing difference moving some dollars in from ‘16 into ‘15 to about a $15 million change. So, that’s all that’s going on there, but our projections haven’t changed. Charles Fishman Okay, thank you. And the second question I had was referred to some of the increasing in gross margin was rate migration, I was wondering if you would give a little more color to what exactly has happened there? Steve Merrill Sure. It’s really just customers changing rate plans that can have an impact on margin. It’s difficult to estimate and project what they will do, but it’s just movement back and forth within the different rate designs. Charles Fishman So, is that typically residential or commercial or? Steve Merrill Commercial. Charles Fishman Okay, thank you very much. Steve Merrill You are welcome. Operator Thank you. We have another question for you and this one comes from Michael Dandurand, and he is from Goldman Sachs. Please go ahead. Michael Dandurand Hey, guys. Congrats on the good quarter. I think most of my questions have been asked already. Just on your outlook for 2015, I know it’s a pretty good quarter, but so – and obviously, it’s super early in the year. Do you guys typically provide updates throughout the year? And if so when would that be in reference to guidance? Sean Trauschke We would when – if there is a significant change, typically, it would be the third quarter. Keep in mind we have only earned about 3% of our earnings per share for the year up to this point. Second and third quarter are where significant earnings come into play and typically late second quarter and then mainly in the third quarter. Michael Dandurand Okay, got it. That’s all I have. Operator Thank you. We have another question for you. This one is from Jay Dobson and he is from Wunderlich Securities. Please go ahead. Jay Dobson Good morning. Pete Delaney Good morning. Sean Trauschke Hey, Jay. Jay Dobson How are you, Sean, Pete, Steve? Quick question on Oklahoma, I will probably throw this to Sean and you can figure out who should answer it. So, we are waiting on the environmental decision hopefully this summer. Talk about rate case outlook, when that might be filed on the heels of and sort of how – what that might look like in rough terms? Sean Trauschke Sure. So, Jay, the way we are going to approach that is this is – when we finally implement the rate impact for the environmental compliance plan, we get that implemented in rates. Depending on when that is, then we will proceed with filing the Oklahoma case. And so what I want to make sure of though is if we receive an order, I want to make sure that we incorporate the latest completed quarter of financial information and take the 6 month look forward from that point on. So, if we received an order in late June or early July and we finally guide in the rates, I want to incorporate the second quarter actuals as the basis for the filing. And so, we want to true that up as real-time as we can. So, the rate case will just be as long as it takes us to close the books for the quarter and make the necessary filings. Remember, the rate case had three components to it. It has, one, we have the statutory requirement in House Bill 1910 to file a case within 24 months. That’s where we are going to check that box with this case. The other piece was we have that expiring wholesale contract with one of the co-ops that expires in June of this year. So, we need to get that back in rates. So, to your point there, that’s about 300 megawatts with an embedded cost of about $240 a KW. So, that’s real value to our customers. And then the other piece of that, Steve mentioned in his prepared remarks, the transmission recovery of the retail component of those transmission lines that are in service. So, we want to pick those up and that was about roughly $100 million of assets. Jay Dobson That’s great. Yes, no, that’s perfect. Sean Trauschke Okay. Jay Dobson And then to Arkansas understanding its early days in asking you to go out here and hypothesize a little bit, but if we were to assume a reasonable outcome in the rate case you might file, would the regulatory mechanisms established under recent legislation allow you to stay out in Arkansas? I mean, I guess, it’s as much a CapEx question as much as anything? Sean Trauschke Yes, it really goes with your forecast but – and where you are. And so our goal is not – our goal is to make sure that we earn our allowed return there. And so considering we have got a lot of balls in there. So, I don’t think it’s – we are not approaching it from a stay-out or come-in perspective. We are approaching it from making sure we have got the right recovery mechanisms to earn our allowed return. Jay Dobson Got it. I guess maybe then asking it in a different way, do you anticipate and again I am asking you to assume a reasonable outcome, can you get to something close to your allowed return in a single case? Sean Trauschke Jay, the largest component or issue we have in Arkansas is the use of the hypothetical capital structure. And we look at our actual capital structure, that’s closer to 53, 47. And the hypothetical structure that’s used in Arkansas is significantly lower than that. So, right out of the gate, we are 60, 70 basis points below our allowed. So, once we address that, I believe we have a very strong opportunity there to earn our allowed return. Jay Dobson That’s super. And then last question, Steve, on the holdco was it the entire $0.02 that was that sort of non-referring element on deferred comp? Steve Merrill Yes, that would be – yes, you just consider that the whole thing, yes. Jay Dobson Perfect. Hey, thank you very much for the time. Pete Delaney Thanks, Jay. Operator Thank you. We have another question for you and this one is from Anthony Crowdell, and he is from Jefferies. Please go ahead. Anthony Crowdell Hey, good morning. Sorry, I jumped in late. I just – I wasn’t sure if you addressed it early, but it seems like there is opposition with Mustang. If Mustang is not included in this environmental plan, can you add that in that the rate filing, the subsequent rate filing that you would have at OG&E? Sean Trauschke Sure, sure. And again, what we asked was for pre-approval of Mustang and so if, in your scenario there, if they elected not to pre-approve it, there would be other opportunities. Anthony Crowdell Yes. And I guess really getting ahead of myself, if you think about the utility over the last several years, you guys had a tremendous transmission build up – really fortified the grade there. You are now going through a period of really fortifying your generation. If I look at 2018, 2019 as you are winding that down, you have given us clarity on the dividend out for 2019, what is the next leg of CapEx for the utility? Sean Trauschke Yes, you are getting this out beyond our 5-year window there. Anthony Crowdell Right, yes. Sean Trauschke But let me just say that, that is something that we are spending a great deal of time thinking about and considering a lot of different options today in anticipation of what exactly are we going to do in ‘19 and ‘20 and what that looks like. And so as we move forward, we are going to talk more about that, but I want to convey to you that, that’s exactly what we are spending a lot of our time on is from a strategic standpoint, what does that look like? Anthony Crowdell Great, thanks for taking my question. I really appreciate that. Sean Trauschke Thanks, Anthony. Operator Thank you. We have a final question for you. And this is from Chris Shelton from Millennium Partners. Please go ahead. Chris Shelton Hey, good morning guys. Pete Delaney Good morning, Chris. Sean Trauschke Good morning, Chris. Chris Shelton A quick follow-up question just on the modeling on the environmental CapEx, it looks like some of the CapEx look forward for me into ‘16 and ‘17, just wanted to see what was kind of driving that? Steve Merrill It’s really just timing of the spend. So, the total really hasn’t changed, but it’s just a timing issue of when we expect the payments to occur. We have been moving along, signing contracts, procuring equipment and so that will tend to move around a little bit, but that’s all that is, is timing. Chris Shelton Got it. It’s a product of kind of selecting vendors, things like that. Steve Merrill Correct. Chris Shelton And then as far as presuming you don’t get a rider and you have to – and you recover this through kind of the normal ratemaking progress, would you be able to include kind of partial plan and to make note of measurables into the cases, I guess or? Sean Trauschke Into – you mean into – are you talking about in the rate case? Chris Shelton Yes. Based on the upcoming rate case, you will spend X amount of dollars on the environmental income. Sean Trauschke No, I think we would just be accruing ACDC and it probably wouldn’t be part of a rate case activity, but we haven’t made that filing, but we don’t view that as something that would be in there. Chris Shelton Okay. Alright, that was it. Thanks guys. I appreciate it. Pete Delaney Thanks, Chris. Operator Thank you. I have no more questions. So, I will hand the call back to Pete Delaney. Pete Delaney Thank you, operator. Well, I would like to take a moment to thank all of our members for their commitment to safety at all times, especially during the storm season. And I want to thank all of you for your continued interest in the company. We are adjourned. Have a great day. Thank you. Operator Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.