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SJW’s (SJW) CEO Richard Roth on Q4 2015 Results – Earnings Call Transcript

Operator Good day, ladies and gentlemen and welcome to the SJW Corp. Fourth Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Suzy Papazian, General Counsel. You may begin. Suzy Papazian Thank you, operator. Welcome to the full year and fourth quarter 2015 financial results conference call for SJW Corp. Presenting today are Richard Roth, Chairman of the Board, President and Chief Executive Officer; and James Lynch, Chief Financial Officer. Before we begin today’s presentation, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future developments as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company’s actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the press release and to our most recent Forms 10-K and 10-Q filed with the Securities and Exchange Commission, copies of which can be obtained at www.sjwcorp.com. All forward-looking statements are made as of today, and SJW Corp. disclaims any duty to update or revise such statements. You will have the opportunity to ask questions at the end of the presentation. As a reminder, this webcast is being recorded and an archive of the webcast will be available until April 25, 2016. You can access the press release and the webcast at our corporate website. I will now turn the call over to Rich. Richard Roth Thank you, Suzy. Welcome everyone and thank you for joining us. I’m Rich Roth, Chairman and CEO of SJW Corp. On the call with me today are Jim Lynch, Chief Financial Officer of SJW Corp. and Palle Jensen, Senior Vice President of Regulatory Affairs for San Jose Water Company. For those who like to follow along, slides accompanying our remarks are available on our website at www.sjwcorp.com. As Jim will discuss in further detail, SJW delivered solid results for the year despite continuing water supply challenges in our California service area. Further looking back at 2015, SJW made substantial progress on a variety of operational and administrative fronts that I believe will make SJW a better and stronger company in many ways. Several examples of the aforementioned improvements follow the successful implementation of San Jose Water Company’s drought response plan, the addition of $96 million to utility plant through our sensible and systematic infrastructure investment program, the initiation of construction on the $62 million Montevina Water Treatment Plant retrofit, extensive enhancements to our customer and stakeholder communications program and another successful year of meeting all drinking water and environmental regulations. I will now turn the call over to Jim who will review our financial results. After Jim’s remarks, I will address key operational regulatory and financial issues. Jim? James Lynch Thank you, Rich. Net income for the quarter was $16.2 million or $0.79 per diluted share compared to $5.7 million or $0.28 per diluted share for the fourth quarter of 2014. Year-to-date, net income was $37.9 million or $1.85 per diluted share compared to $51.8 million or $2.54 per diluted share for 2014. Fourth quarter revenue was $87.6 million, a 26% increase over the fourth quarter of 2014. For the year, revenue was $305.1 million or a 5% decrease over 2014 revenue. 2015 marked the fourth consecutive year of drought conditions in our Northern California service area. In response to state mandated emergency conservation regulations, in 2015, the Santa Clara Valley Water District increased their conservation target from 20% to 30% of 2013 usage through the end of 2015. As a result, we experienced a decline in customer usage of 12% for the quarter and 18% for the year. The revenue impact of lower customer usage was a decrease of $7.9 million for the quarter and $36.3 million for the year while compared to 2014. Reported 2015 results also reflect the impact of rate increases that contributed $4.7 million in new revenue for the quarter and $37.8 million for the year. 2015 was the last year of the 2012 California General Rate Case or GRC and effective January 01, 2016 the company has been operating under interim rates. Rich will provide an update on our 2015 general rate case application in his remarks to follow. In addition, the change in our year end operating results over last year was significantly influenced by true up revenue recognized in 2014 in-connection with our 2012 GRC decision. Recall that in the third quarter of 2014, we recognized $46.5 million related to the 2012 GRC decision including $21.9 million in true-up revenue related to 2013. The difference between revenue authorized by the California Public Utilities Commission or the CPUC, the actual revenue net of savings from lower water purchase volumes is tracked in the company’s Mandatory Conservation Revenue Adjustment Memorandum Account or MCRAMA. On December 03, 2015 we received authorization from the CPUC to recover $4.3 million of accumulated lost revenue in the MCRAMA during the period from April 01, 2014 through December 31, 2014. We recognized $3 million of the authorized amount in the fourth quarter net of $1.3 million which we estimated would not be collected within 24 months of year end. The December 03 decision required the company to change its methodology used to calculate lost revenue. And along with the methodology change renamed the MCRAMA to water conservation memorandum account or WCMA. With the decision, the company also met the revenue recognition criteria for amounts accumulated in the WCMA for the period from January 01, 2015 to December 31, 2015 and recognize an additional $17.5 million in fourth quarter revenue. The amount recognized was net of $2.3 million for estimated collections after 24 months from year end. Turning to water production, the lower usage in our California service area in 2015, coupled with greater volume of available service water resulted in lower 2015 water production cost. Water production expense was down $3 million for the quarter and $21.5 million for the year due to lower usage while available surface water increased expense $500,000 for the quarter and decreased it by $2.6 million for the year. The combined water production cost savings was partially offset by higher purchase water cost of $2.7 million and $12 million for the quarter and year respectively. Operating expenses excluding water production cost were $29 million for the fourth quarter which was an increase of $2 million when compared to the fourth quarter of 2014 and a $114.5 million for the year compared to $104 million in 2014. The increases were primarily the result of higher administrative and general expenses due to an increase in pension cost. The pension cost increase was due to a lower discount rate used to calculate our 2015 pension expenses and the implementation of new mortality tables. In addition, both the quarter and year end balances include higher cost incurred in connection with our 2015 California General Rate Case proceeding and higher depreciation amounts due to utility plant additions. Other expense and income in 2015 included the third quarter sale of multiple non-utility real estate properties for a gain of $1.9 million. In 2014, other expense and income included a gain of $2 million on the sale of California Water Service Company stock in the second quarter and a gain on the sale of real estate investment properties in Texas and California in the second and third quarter respectively of $300,000 each. Another point of note, in 2014, the company recorded a California state income tax benefit of $5.1 million related to the adoption of new Department of Treasury and Internal Revenue Service tangible property regulations for 2013 and prior years. In addition, the company recorded a benefit of $880,000 for the recognition of enterprise zone sales and used tax credits in 2014. No similar amounts were recorded in 2015. For those following along on our website, I’ve presented the earnings impact of the aforementioned items on a couple of slides. The first one bridges our 2014 fourth quarter earnings per share with 2015 fourth quarter earnings per share. The second bridge bridges our 2014 earnings per share for the year with 2015 earnings per share. Turning to our capital expenditure program, we added $96 million in core utility plant during 2015. This represented 90% approximately of our 2015 planned core utility plant expenditures. In addition, we completed $9 million of construction on our Montevina plant retrofit project. The retrofit project is a progressive design build project allowing for operation of the plant for surface water production during the 2015 and 2016 rainy season. The next phase of construction is scheduled to begin in July of 2016. From a liquidity perspective, annual cash flows from operation increased by $31.3 million or 48% due in large part to higher income and the collection of $6 million in income tax receivable that was generated at the end of 2014. In addition, we experienced a $13.3 million cash increase from the collection of surcharges in connection with the 2012 GRC decision and $12.1 million in cash collected from drought surcharges. Note that the company has been collecting drought surcharges under our water shortage contingency plan since June of 2015. Amounts collected are recorded by the company as regulatory liabilities. The collections will be used to offset future amounts authorized by the CPUC for recovery under the WCMA. At the end of the year, we had $62.4 million available under our bank lines of credit for short-term financing of utility planned additions and operating activities. The borrowing rate on the line of credit advances during the year averaged 1.31%. So with that, I will stop and turn the call back over to Rich. Richard Roth Thank you, Jim. Our California customers have done a remarkable job of conserving and helping stretch our precious water supplies in response to the many and varied calls for conservation. Public agencies, elected officials and other stakeholders in California and Silicon Valley also deserve credit for their timely reaction to the drought and the collaboration that resulted in a very effective response to the Marriott of new water conservation rules and targets. Although the California water supply is more positive that in years past, we believe there is a structural water supply deficit. SJW is committed to ensuring that our water suppliers are drought resistant, reliable and sufficient to meet the region’s growing economy and customer base. Accordingly, we are spiriting efforts to expand the region’s water supply by focusing on waste water we use which we believe is relatively drought tolerant and reliable source of supply. Dealing with an extended drought has made SJW increasingly aware of the need to connect with and invest in the communities we serve. We have learned valuable lessons about how to effectively conserve and ensure the balance sheets of all resources. The SJW has institutionalized the lessons learned and modified our business processes to ensure a stronger and more sustainable company. Turning now to regulatory affairs, San Jose Water Company is still awaiting a proposed decision and its 2015 rate case filling. Since a timely decision was note received, the company as allowed by California Regulation implemented interim rates effective January 01, 2016. Although the rates did not change, this action will ultimately allow San Jose water-company to apply the rate increase adopted in the commission’s final decision retroactively to January 01 of 2016. On December 11, 2015, the San Jose water company along with 3 other publicly traded California water utilities filed a request for a one year postponement of the 2016 cost of capital proceeding. Pursuant to the commission’s rate case plan, utilities are required to file cost of capital applications on a treenail basis. Postponing the filing for one year will reduce administrative cost for the utilities as well as the commission staff. This request was approved on February 01 of 2016. As San Jose Water Company continues to collect true of charges related to the 2012 general rate case and on the difference between authorized and actual sales, there is good reason to be optimistic about SJW’s prospectus, realistic sales numbers and established revenue production mechanisms are now in place and will not only address the effects of the draught and conservation efforts, but also promote increased infrastructure investments. While the regulatory environments in which we operate or demanding, we believe the days of extended regulatory lag are behind us and this should result in a greater opportunity for us to earn our authorized returns. It is especially noteworthy that SJW is 2016 consolidated capital program is expected to exceed $140 million. These approved investments are not only essential to providing safe, high quality and reliable water service but they also help propel sustainable growth in rate base and thus the company’s long term earnings potential. SJWTX Inc, our Texas Waste Water and water utility continues to experience robust demand for water services. Since its acquisition in 2006, SJWTX is customer count and gross utility plan have increased by almost 70% and 330% respectively. Within diverse portfolio of water supplies, a growing waste water business and continued additions to customer base through organic growth and acquisitions. We remain optimistic about the prospects for SJWTX. In January 2016, the board authorized a 4% increase in SJW’s annual dividend to $0.81 per share. The dividend increase demonstrates the company’s strong commitment to our shareholders and evidence is that more confidence in the company’s business plan. Finally, in 2016, San Jose Water Company will celebrate its 150 th anniversary. The lasting success and longevity of the company can be traced to the enduring quality of the company and are unwavering commitment to our customers and the communities we serve. This commitment is reflected in our employees past and present who are the most report and for our continued success. With that, I’d like to turn the call back to the operator for questions. Question-and-Answer Session Operator Richard Roth Thank you everyone for listening. Appreciate your confidence to investment in SJW and we look forward to talking to you at the end of the first quarter. Thank you. Operator Ladies and gentlemen, thank you for participating in today’s conference. 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Otter Tail’s (OTTR) CEO Chuck MacFarlane on Q4 2015 Results – Earnings Call Transcript

Operator Good morning and welcome to Otter Tail Corporation 2015 Earnings Conference Call. Today’s call is being recorded and there will be a question-and-answer session after the prepared remarks. I will now turn the call over to the Company for their opening remarks. Loren Hanson Good morning, everyone and welcome to our call. My name is Loren Hanson and I manage the Investor Relations area at Otter Tail. Last night, we announced our 2015 results and issued 2016 guidance. Our complete earnings release and slides accompanying this earnings call are available on our website at www.ottertail.com. A replay of the call will be available on our website later today. With me on the call today are Chuck MacFarlane, Otter Tail Corporation’s President and CEO and Kevin Moug, Otter Tail Corporation’s Senior Vice President and Chief Financial Officer. Before we begin, I’d like to remind you that during the course of this call, we will be making forward-looking statements. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding Otter Tail Corporation’s future financial and operating results, or other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. For opening remarks, I will now turn the call over to Otter Tail Corporation’s President and CEO, Mr. Chuck MacFarlane. Chuck? Chuck MacFarlane Good morning and thanks for joining our call. During the last several years, Otter Tail Corporation has been moving toward a business model with two platforms and one common vision. Result is a focused manufacturing platform combined with a core utility platform. Our vision includes attention on growth, operational excellence, talent development. The electric platform continues to execute on a robust rate base expansion effort. Slide 5 shows our rate base expansion and a compound annual growth rate of 8%. This has been adjusted to account for the impacts the recent five-year extension to bonus depreciation and additional renewable and natural gas generation projects. During the 2016 to 2020 timeframe, Otter Tail Power plants to make $858 million capital investments. Slide 6 shows our regulatory framework, which continues to be constructive. As noted on the bottom of the slide, half of the projects are eligible for rider recovery while under construction. And the majority of the balance of the capital spend is at current depreciation levels effectively in existing base rates. Presence of our manufacturing and plastics companies continue to guide improvement in each of their businesses. And I’ll discuss some of the examples in a moment. All of our operating companies focus on our long-term compound annual earnings per share growth goal of 4% to 7% as measured from 2013 earnings per share of $1.50. While we’re currently below this goal, we are confident we will be back in this range given our pipeline of rate base projects and our effort to return our companies to historic return on sales levels when the current down cycle manufacturing segment improves. Otter Tail Corporation ended 2015 with earnings per share of $1.56 from continuing operations, a return on equity of 10% and a dividend yield of 4.6%. We accomplished this by managing through difficult end market conditions in our manufacturing segment. In addition, tax law changes made late in the year negatively impacted our consolidated results. Kevin will cover this in more detail. Otter Tail Power’s results benefited from strong project management and regulatory recovery. And despite weather challenges, Otter Tail Power finished the year with 10.7% increase in net income. Of note, Big Stone plants’ air quality control system reached commercial operation on December 29, ahead of compliance deadlines and under budget. Looking ahead, construction has begun on 70-mile 345-kv transmission line running from Big Stone South substation to Brookings, South Dakota. This should be completed in 2017 The structure will begin in mid-2016 on a 170-mile line from Big Stone South substation to Ellendale North Dakota with an expected completion date of 2019. In addition, Otter Tail Power management is evaluating options for natural gas plant given the plant retirement of Hoot Lake Plant in 2021. Otter Tail Power’s Minnesota approved integrated resource plan calls for up to 300 MW of additional wind energy by 2021, and before 2020, enough solar to power 1.5% of Minnesota retail sales. This equates to approximately 30 MW of new solar. Today, 19% of the Company’s retail load is served by renewals. The extension of the renewable production tax credit and the investment tax credit will benefit customers by allowing Otter Tail Power to continue adding low-cost renewables to the supply portfolio. One more utility item before turning to the manufacturing platform is to let you know that we will file a rate case in Minnesota before the end of the month. This will be the first Minnesota general rate case since 2010. More details will be available after the filing. Our manufacturing companies continue to be impacted by economic headwinds in agriculture and energy end markets, and the general contraction in US manufacturing. While we continue to position them for future growth. For example, BTD’s Minnesota optimization plan is on track. By the end of the first quarter, the Detroit Lakes portion of the plan will be complete. And a new state-of-the-art paint line is already operational in the expanded Lakeville facility. BTD’s world-class OEM customers are impressed with the facility and we expect to receive paint system approval from all remaining OEMs by the end of the first quarter. Another example positioning for the future growth is BTD’s September acquisition of Impulse Manufacturing, now known as BTD-Georgia. Integration is going well. BTD-Georgia has made significant progress on integrating the estimating function as increased services and improved on-time delivery. Vinyltech and Northern Pipe Products, our plastic segment, a 2015 results similar to those of 2014, which is evidence of a nimble management team that managed through reduced demand and declining sales in resin prices. Overall 2015 included a number of important events for Otter Tail Corporation. We have captured some of the highlights on slide 8. In addition to what I’ve already discussed, the EPA announced its final Clean Power Plan rule, Otter Tail Power continues to work with stakeholder groups at states develop their implementation plans. Survey results from two nationally recognized customer satisfaction firms rated Otter Tail Power highest in overall customer satisfaction among electric utilities in various categories. And the John Deere plant in Fargo, North Dakota recognized BTD with its highest supplier award. And Vinyltech set a record for pounds of pipe sold in 2015. Now I’ll turn it over to Kevin for the financial perspective. Kevin Moug Good morning. Our guidance for 2015 was to be in the middle to upper half of the range of $1.50 to $1.65 a share from continuing operations. This was based on current tax law at the time the guidance was issued. We also disclosed this guidance could be reduced by $0.02 to $0.04 a share if the tax law was changed. The federal government did change the tax law on December 18, 2015. A large amount of capital we placed in service in December of 2015 combined or taking [ph] bonus depreciation put us in a consolidated net operating tax loss for the year. As a result, we weren’t able to take Section 199 deduction but did pick up the research and development credits that is now permanently placed in the tax law. And our 2015 results were negatively impacted by $0.03 a share. Without the effects of the tax law changes, our earnings per share from continuing operations would have been in the middle to upper half of the guidance range we had previously given. Please refer to slide 9 for an overview of 2015 earnings from continuing operations. Our electric segment had strong earnings in 2015 in light of milder weather. The key factors of the $4.7 million increase in net earnings were increased environmental and transmission costs recovery riders, increased conservation incentives and increased sales to pipeline customers. Year-over-year, weather negatively impacted earnings per share by $0.08. And compared to normal, weather negatively impacted earnings per share by $0.05. Lower operating and maintenance travel and administrative costs also favorably impacted earnings. For our manufacturing segment, net earnings declined between the years at BTD by $4.9 million and at T.O. Plastics by $200,000. An overview of these results by each company is as follows. BTD’s revenues declined $6.6 million due to continued softness in sales to customers served by BTD in agricultural as well as oil and gas end markets, lower scrap sales due to a reduction in scrap metal prices and a reduction in scrap volume related to lower production and the sales volume. Softness in scrap metal prices continues to be plagued with excess steel capacity in the US market and low-priced steel imports. Scrap revenues as a percentage of part sales were 4% in 2014 compared to 2.2% of parts sales in 2015. This item alone accounted for $1.9 million reduction in net earnings between the years and lower tooling revenues also contributed to BTD’s revenue decline. These declines were offset by additional revenues of $8.8 million from the BTD Georgia acquisition in September of 2015 and BTD’s results were also negatively impacted by higher costs and expedited freight, manufacturing consumables and cost of quality. T.O. Plastics’ revenues increased $2 million as a result of increased sales in horticultural and custom products, but while these revenues increased year-over-year for T.O. Plastics, margins declined due to a change in product mix. Our Plastics segment earned $0.32 a share in 2015 compared to $0.33 a share in 2014. Revenues declined year-over-year mainly due to lower PVC pipe prices. Pounds sold were down 1.4%. Earnings, however, were flat as we were able to maintain operating margins in light of declining sales prices and our corporate costs were $0.16 a share compared to $0.22 a share in 2014. Since 2013, corporate costs have been reduced by more than 36%. Please move to slide 12 for a discussion of our 2016 business outlook. Our 2016 earnings guidance is expected to be in the range of $1.50 to $1.65 earnings per share. This guidance reflects our current mix of businesses and the current economic challenges being faced in our manufacturing platform. Our Electric segment’s 2016 net earnings are expected to be slightly higher than 2015 based on normalized weather for 2016, a constructive outcome of the Minnesota rate case, which is expected to be filed before the end of February 2016, rider recovery increases including riders in Minnesota and North Dakota related to the Big Stone Plant AQCS environmental upgrades and transmission riders related to CapX2020 and increased investments in MISO MVP transmission projects, Increased volumes from pipeline and commercial customers and lower pension costs as a result of a decrease in projected benefit expenses due to an increase in the discount rate. These items are primarily offset by the effect of the 2015 adoption of bonus depreciation for income taxes which reduces 2016 earnings by $0.06 a share, higher depreciation and property tax expense due to large capital projects being put into service, higher short-term interest costs to fund major projects and increasing operations and maintenance expenses. BTD, in our manufacturing segment, has significant exposure to the ag, oil and gas and recreational vehicle end markets. Customers served in these end markets are forecasting 2016 sales to be lower than 2015. Despite these challenges, we expect increased net earnings from our manufacturing segment in 2016 due to increased sales at BTD Georgia due to a full year of ownership. Expected full-year sales for BTD Georgia are $33 million. Excluding the full-year impact of the BTD Georgia, revenues are planned to grow approximately 7% based on BTD’s new paint line being placed into service in January of 2016 and its expected impact on sales growth and improved operating margins from improved productivity and efficiencies gained in our manufacturing processes. These items are offset impart by continued lower scrap revenue due to lower commodity prices from excess capacity and lower-priced imported steel. Scrap revenue is currently expected to be about 1% total part sales for 2016 and higher facility costs associated with BTD’s expansion. T.O. Plastics’ earnings are expected to be lower in 2016 primarily due to a shift in product mix and backlog for this segment is approximately $134 million for 2016 compared with $140 million a year ago. We expect Plastics segment net income to be down from 2015 as sales volumes are projected to be flat compared to 2015 and lower operating margins are expected due to tighter spreads between raw material costs and sales prices along with increased labor and trade and we expect corporate costs to be lower in 2016 compared to 2015. On February 5, 2016, we issued a $50 million two-year note with an ability to borrow an additional $50 million with lenders’ consent. Proceeds were used to pay down borrowings on the line of credit used to fund BTD’s Minnesota facility expansion as well as fund the BTD Georgia acquisition. The borrowing costs under this facility are lower than the interest costs of our corporate credit facility. This facility also positions us to have a backstop to retire the remaining $50 million of 9% notes due in December of 2016. Let me provide an overview of our capital expenditure plans as shown on slide 14. We expect capital expenditures for 2016 to 2020 to be $858 million for the electric utility. This is an increase over our previous year’s guidance as we have included additional wind and solar projects as well as the completion of our natural gas generation facility. We expect capital expenditures for the manufacturing platform to be $114 million over the same time period. Our updated compounded annual growth rate in rate base is 8% from 2014 through 2020. This reflects our updated capital plans and the impact of the recently extended tax loss related to bonus depreciation. Our need for equity over this timeframe before the change in bonus depreciation was in the range $140 million to $150 million. We expect this need to be reduced by $25 million to $35 million as a result of the extended bonus depreciation. We also expect to use our existing stock programs to satisfy these equity needs. Based on our solid 2015 performance and the 2016 outlook, the board of directors increased our indicated annualized dividend rate from a $1.23 a common share to $1.25 a common share. Our 2016 guidance is dependent on the business and economic challenges our two platforms face in 2016. Key initiatives include a constructive outcome of a rate case expected to be filed in Minnesota by the end of February 2016, BTD’s successful growth in sales from its new paint line along with our operational improvements needed to further improve our return on sales margins, and full integration of BTD’s new facility in Georgia to better serve our growing customer base in the Southeast. These are key initiatives that must be successful in light of continuing end market softness in ag, oil and gas and recreational vehicle and continued strong earnings, cash flows and returns on invested capital in our Plastics segment. We remain confident in the future earnings ability of our two platforms to meet our long-term stated growth goals of 4% to 7%, compounded annual growth rate of earnings per using 2013 as the base year. We are now ready to take your questions and after the Q&A, Chuck will return with a few closing remarks. Question-and-Answer Session Operator Thank you. [Operator Instructions] Thank you. And our first question comes from the line of Paul Ridzon with KeyBanc. Your line is open. Paul Ridzon Good morning. When do you expect Minnesota rates to kick in? Kevin Moug We would anticipate a filing by the end of February. There is a 60-day period within the filing complete and so interim rates would go in by May 1. Paul Ridzon May 1? Okay. And then with the drilling slowing down, you’re forecasting higher pipeline sales, is that just the system is still backfilling with takeaway capacity? Chuck MacFarlane The majority of our pipeline load is associated with Canadian oil, not directly with drilling in the Bakken and a majority of those capital processing investments in plants in Canada continue to operate. Paul Ridzon And then what’s driving higher sales to commercial customers? Chuck MacFarlane Paul, we just collectively have grouped the pipeline in the commercial sales together and the increases in — it’s mostly the pipeline. Paul Ridzon And then, if we pro rate, I think 8.8 million that Georgia earned since September 1, that gets me about $26.4 million on an annual basis, but you’re forecasting 33. Is that business ramping, are you realizing some synergies or what drives that increase? Was it just seasonality? Kevin Moug Yes. Well, we’re expecting additional — as a result of the acquisition, we’re expecting additional volumes coming from other customers that BTD was serving before the acquisition that we can now also better serve them down in the south-east. Paul Ridzon So is it revenue synergy and cost synergies? Kevin Moug There is revenue synergies and then there is cost synergies as well, but the 8.8 million just to clarify earned was, that’s revenue in 2015. And we’re forecasting approximately 33 million of revenue in 2016. So that’s roughly a $24 million increase. One just now the benefit of having it owned for an entire year plus some additional growth from being able to better serve customers in the southeast that we hadn’t been able to necessarily serve as a result of not having a location and then additional sales growth from some of the other customers that we’re serving there. Paul Ridzon Got it. Thank you. And then lastly, excluding Georgia, you are looking for revenues to be up 7% at BTD. What are the end markets that’s driving that increase? Kevin Moug Well, a lot of the stuff that’s coming is the bringing the paint line in effective here January, because we know there is additional opportunities with existing customer base as to now provide them additional product or services if you will, given that we have paint. So we would expect that that growth is coming across a number of the end markets as we’re now able to paint for egg, recreational vehicle and other lawn and garden and other end markets that we’re serving. Paul Ridzon And you’ve got, at this point, good visibility on that business coming in? Kevin Moug We have, as Chuck mentioned, we’re mostly qualified for — I think we’re expected to have remaining qualifications wrapped up by the end of the first quarter and the line [ph] is running. We were just there last Tuesday with our board and saw the line running and painting parts and so the visibility obviously, we’ve still got to go out and win the work, but we’ve got a line that’s operating well, it’s in service and it is past a number of the qualifications for paint specs by customers. Paul Ridzon Okay, thank you very much. Kevin Moug Welcome. Operator Thank you. [Operator Instructions] Our next question comes from the line of Mike Bates with Robert W. Baird. Your line is open. Mike Bates Good morning, gentlemen. How are you? I was hoping to get a little bit more color on your upcoming rate case filing. Can you talk to us a little about the expected breakdown in your F between just rolling rider recoverable projects in to rate base and things like that as opposed to evolution of your operating expenses, changes in demand forecast, things like that? Chuck MacFarlane Yes. I mean our case will continue to work, the riders will be in place and generally and at the finalizing of the case, we’ll roll some of those riders into, we would anticipate, the emissions equipment at Big Stone whatnot would be rolled into base rates. So our filing is an adjustment above what we’re getting currently in rider covered. Kevin Moug Mike, this is Kevin. Until the rate case is filed, there is really nothing that we can give in terms of additional detail on it. When we file the rate case, there will be an 8-K filing that we’ll go along with that and that will have more details in it. Mike Bates Sure. Absolutely. And don’t want to get too deep into the weeds before we have that finally in front of us. One other question though is, should investors expect to see a multi-year rate plan or would you expect it to be a more traditional single test year type of deal? Chuck MacFarlane It will be more a single test year, forward-looking test year, single year case. Mike Bates All right. And then any color you can offer in terms of when we might see rate cases filed in your other jurisdictions? Kevin Moug We will start in the middle of this year with our — as we do every year, our cost of service studies and allocations between jurisdictions and would make a decision probably earlier in the third quarter, if there would be any additional filings this year in either of the Dakotas. Mike Bates Absolutely. Okay. And just the last question before I hop off, in terms of your new generation resources we’re looking at, over the next several years, will you be required to hold a competitive RFP as we think about the likelihood of these projects being owned resources put into rate base as opposed to PPAs? Chuck MacFarlane We’ll continue to lease gauss planning, we currently are not under a requirement to RFP there in any other jurisdictions. Mike Bates And remind me, do you have the ability to get preapproval or predetermination for either type of resources? Chuck MacFarlane We have the ability in both Minnesota and North Dakota to file for a Advance Determination of Prudence on these facilities and also incorporate those into our integrated resource plan as filed with Minnesota, that plan, an update to that is due in June of ‘16. Mike Bates Excellent. Thank you very much. Operator Thank you. And we have a follow-up from Paul Ridzon with KeyBanc. Your line is open. Paul Ridzon What was the impact of weather versus normal for the full year? Sorry, if I didn’t get that? Kevin Moug The impact of weather versus normal was $0.05. Paul Ridzon So if we were to add that back to 15 results, you’re looking for a down year at the utility? Chuck MacFarlane Well, I mean weather is arguably offset by the first year in this bonus depreciation. Paul Ridzon Okay. That was $0.06 Chuck MacFarlane That was $0.06. Paul Ridzon Thank you for that clarification. Thanks. Operator Thank you. And this does conclude today’s Q&A session. I would now like to hand the call over to Mr. Chuck MacFarlane for closing remarks. Chuck MacFarlane Thank you. I’ll summarize by saying that we remain committed to a diversification strategy focused on two distinct platforms, manufacturing and the core utility. Our companies will continue to focus on customers and we’ll take a long term view. Our strategic objectives are to grow our businesses, achieve operational excellence and develop our talent. We thank all of our employees for their hard work and we thank you for joining the call and for your interest in Otter Tail Corporation. We look forward to speaking with you next quarter. Operator Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program and you may now disconnect. Everyone, have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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. 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New Jersey Resources’ (NJR) CEO Larry Downes on Q1 2016 Results – Earnings Call Transcript

Operator Good morning and welcome to the New Jersey Resources Corporation First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Dennis Puma, Investor Relations. Please go ahead. Dennis Puma Thank you, Gary. Good morning, everyone. Welcome to New Jersey Resources’ first quarter fiscal 2016 conference call and webcast. I am joined here today by Larry Downes, our Chairman and CEO, Pat Migliaccio, our Chief Financial Officer, as well as other members of our senior management team. As you know, certain statements in today’s call contain estimates and other forward-looking statements within the Private Securities Litigation Reform Act of 1995. We wish to caution listeners of this call that the assumptions forming the basis for forward-looking statements include many factors that are beyond NJR’s ability to control or estimate precisely, which could cause results to materially differ from the company’s expectations. A list of these items can be found, but is not limited to items in the forward-looking statements section of today’s news release filed on Form 8-K and in our most recent 10-K filed with the SEC. Both of these items can be found at sec.gov. NJR does not, by including the statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. I would also like to point out that there are slides accompanying today’s discussion, which are available on our website and were also filed on our Form 8-K this morning. With that said, I would like to turn the call over to our Chairman and CEO, Larry Downes. Larry? Larry Downes Thanks, Dennis. Good morning, everyone and thank you for joining us. For those of you who have seen our release this morning, you know that our first fiscal quarter performance was solid. As we begin this morning I want to remind everyone that during my presentation I’ll be discussing our future and I’ll be making forward-looking statements. Our actual results will be affected by many risk factors, including those that are listed on slide two. The complete list is included in our 10-K and as always I would encourage you to please review them carefully. Also as noted on slide three, I will be referring to certain non-GAAP measures such as net financial earnings, or NFE as I am discuss our results. We believe that NFE provides more complete understanding of our financial performance. However, I want to stress that NFE is not intended to be a substitute for GAAP. Our non-GAAP measures that are discussed more fully in Item 7 of our 10-K and please take the time to review that disclosure carefully as well. Moving to slide four, you can see our financial and strategic highlights for the quarter. NFE for the quarter were $0.58 per share compared with $0.65 per share in the first fiscal quarter 2015. The difference is due primarily to lower results at NJR Energy Services. Our fundamentals at New Jersey Natural Gas remained strong. We added 2,046 customers during the first fiscal quarter of 2016 and remain on track to realize a 1.6% customer growth rate during this fiscal year. We filed the base rate case in November to recover investment and operating cost incurred to improve our system and support customer growth initiatives. We also reached another important milestone during the quarter when we retired the last section of cast iron main in our distribution system. We are now the only utility in New Jersey to have a cast iron free system. Our infrastructure investment programs continued as expected. In the quarter New Jersey natural gas spent about $44 million for customer growth and to improve the reliability and resiliency of our system. Our clean energy ventures completed their third onshore wind project in December this 50.7 megawatt Alexander Wind Farm is located in Rush County, Kansas. We now have three operating wind farms that are contributing to our earnings and as you know we announced the fourth project last night. Also congress extended investment tax credits for solar and production tax credit to wind in December. That has positive implications for our distributed power business and although lower than last year NJR Energy Services is performing well despite the warm weather and their results remain in line with our expectations. Moving to slide five, this morning we announced net financial earnings of $49.6 million or $0.58 per share during the first fiscal quarter of 2016. That compared with $55.1 million or $0.65 per share last year. New Jersey Natural Gas reported strong earnings as a result of higher gross margin from customer growth, our BGSS incentives and regulatory initiatives such as the SAVEGREEN project. Although, the quarter was about 35% warmer than normal our Conservation Incentive Program, which we referred to CIP mitigated the impact on earnings. Our midstream, excuse me moving to slide six, our long-term average annual NFE growth rate remains 5% to 9% and that assumes that fiscal 2013 is the base. Today, we reaffirmed our NFE guidance for fiscal 2016 in the range of $1.55 to $1.65 per share. First and foremost I want to emphasize that the guidance assumes that New Jersey Natural Gas will remain the primary driver of our strategy and our performance. New Jersey Natural Gas will provide the majority of our earnings, our assets, our people and our capital investments. Infrastructure projects and new customer additions will continue to drive our investments. Our midstream investments will also contribute to our regulated earnings combined with New Jersey Natural Gas our regulated businesses are expected to contribute between 65% and 80% of total net financial earnings in fiscal 2016 and beyond. As I mentioned earlier, NJR clean energy ventures provide renewable electricity from our solar and wind investments. We are focused on diversifying our earnings through this business as we continue to grow our portfolio of wind projects. Clean energy ventures is expected to provide between 10% and 20% of net financial earnings in fiscal 2016 and beyond. Now I think as many of you recall extreme volatility in fiscal 2014 and 2015 created market opportunities that led to outstanding performance for NJR Energy Services. This year warm weather conditions created by El Niño patterns have resulted in less volatility than we experienced in the previous two fiscal years. And so we expect that NJRES will contribute between 5% and 15% of net financial earnings in fiscal 2016 and that number is consistent with our expectations. At the same time, our annual dividend growth goal remains at 6% to 8% with the targeted payout ratio of 60% to 65%. Turning to slide seven, in December, Congress extended both the production tax and investment tax credits essentially the legislation extended the PTC and its existing value of $23 per megawatt for wind projects that begin construction through December of 2016. The value of the PTC will gradually decline to 2019 and thereafter will be eliminated. In addition, the investment tax credit was extended at its current level of 30% for solar projects that commence construction before December 2019. The credit reduces to 26% for projects started in 2020 and to 22% in 2021 provided that these projects are in service by December of 2023. Commercial solar projects started after 2021 are eligible for a 10% ITC. And now I think as many of you know over the past several years, our strategy reflected our expectation that Congress would not extend these credits. As a result, our plan was to reduce our solar capital spending and to diversify our portfolio, which as we indicated on our Investor Day in October we were on track to achieve that. The ITC and PTC expenses now provide us with options to invest in wind and solar over the next several years and we are currently reviewing how these changes will impact our future CEV investments. In the short-term you can expect us to focus on the build out of our BPU approved grid connected solar projects in New Jersey to continue our residential solar program and to add onshore wind projects to our portfolio, but I would again emphasize that we continue to expect that CEV will contribute 10% to 20% of our NFE and that remains unchanged from previous forecast. On slide eight, last evening we announced our fourth onshore wind project a 39.9 megawatt Ringer Hill Wind project, which is located in Somerset County, Pennsylvania, that is about 60 miles from Pittsburgh. We’ll invest about $84 million in this project and we expect that we’ll come online during first quarter of fiscal 2017. When the Ringer Hill is completed we will have four wind farms with total capacity approximately 120 megawatts of renewable electricity. And before I turn the call over to Pat to discuss our quarter results, I want to review slide nine which summarizes our capital expenditure program, in the chart you can see that the majority of our capital investments will continue to be allocated to our regulated utility New Jersey Natural Gas and our midstream businesses. And so I will turn the call over to Pat who will review our financial results, but I want to remind everyone that Pat officially became our Chief Financial Officer effective January 1st so this is his first opportunity to share our financial results with you. But Glenn is in the room and he’ll keep an eye on Pat so not to worry. Pat? Patrick Migliaccio Thanks, Larry and good morning, everyone. As you can see on slide 10 NJNG’s net financial earnings were $30.6 million compared to $28.2 million in the prior quarter. The improved financial performance was driven by a significant increase in gross margin from customer growth, our BGSS incentive programs, and SAVEGREEN our energy efficiency program. Since this inception the BGSS incentive programs have saved customers approximately $800 million and also provided share owners at an average of $0.05 of NFE per share annually. Turning to Slide 11, we added 2,046 new customers in the first quarter with approximately half of those customers coming from other fuels, primarily fuel oil. Combined these new and conversion customers are expect to contribute approximately $4.4 million annually to utility gross margin. Although additions are down in the first quarter due to the timing differences we’re on track for the year and expect to add 8,150 customers to our system in fiscal 2016. This will be about 4% increase over the prior year. Through our fiscal year 2018 we expect customer growth additions of 24,000 to 28,000, representing an annual new customer growth rate of about 1.6%. Most of you are familiar with the regulatory programs that we list on slide 12. I just mentioned the impact that our BGSS incentives have had in the results, our CIP which has been in place for about 10 years significantly mitigated the impact of warm weather and a resulting lower usage levels in our first quarter. This past November-December were among the warmest in our company history. Through SAVEGREEN we invested $8.6 million in the first quarter 2016 and our VP approval to invest $220 million through June of 2017. This program supports New Jersey’s energy efficiency goals by helping both customers and share owners. Also in the first quarter we invested $7.2 million in SAFE program. SAFE is $130 million four-year infrastructure program to replace 276 miles of unprotected steel and cast iron main to ensure safety and reliability. And finally we invested $5.1 million during the quarter in our NJ RISE program, which is $102.5 million five year program consisting of six capital projects designed to improve the resiliency of our system. As Larry has mentioned we filed our base rate case on November 13th as the BPU questioned when they approved our SAFE infrastructure program in 2012. The $147.6 million rate increase request will primarily allow us to recover cost incurred to improve our system and support customer growth. As you can see we have included the details of our forecasted rate base and cost of capital on the slide. We’re currently in a discovery phase. The BPU rate case process can take up to 12 months so we expect to have new rates in the first fiscal quarter of 2017. Moving to slide 14, midstream NFE totaled $2.3 million in the first quarter of 2016 compared with $2.1 million in the prior year. The increase reflects higher revenue from the Steckman Ridge storage facility. We also have a 20% interest in the PennEast Pipeline, which filed its 7C application with FERC in September and we’re currently working through the approval process. There is contribution from NJR Midstream in fiscal 2016 is expected to remain at 5% to 10%. Turning to slide 15, Larry mentioned earlier that NJRES reported lower NFE of $10 million in the first quarter of 2016, compared with $16.4 million last year. As expected their financial margin was lower than last year due primarily to narrow price spreads resulting from lower natural gas prices. And as Larry mentioned, we expect NJRES to contribute 5% to 15% NFE in fiscal 2016 and beyond. Moving to slide 16, first quarter 2016 NFE at NJR clean energy ventures totaled $7.5 million compared with $9 million last year. The decrease quarter-over-quarter was due primarily to lower investment tax credits. Our Sunlight Advantage program added 84 residential customers or 0.7 megawatts in the first quarter. This brings the total number of residential customers to more than 4,000 and our residential solar portfolio to more than 36 megawatts. Total capacity for all LCV solar projects is now just over 118 megawatts, which produces approximately 142,000 SRECs annually. Adding new three wind projects to that total, our distributed power portfolio is nearly 199 megawatts of which approximately 40% is wind. As shown on slide 17, we’ve been actively hedging our SREC sales. When considering our expected generation, we are 92% hedged for fiscal 2016 as you can see from the chart and we’ve been actively hedging future years. The red line represents the SRECs we expect to be generated from our existing portfolio. We believe that the increasing number of SRECs, the expectation of continued strength in SREC prices, the impact of our hedging program and expected earnings from our wind investments, support our forecast of 10% to 20% of our total NFE coming from CEV in fiscal 2016 and beyond. I will now turn the call back to Larry, for his closing comments. Larry Downes Thanks, Pat. I want to conclude our call today with a review of our path to future growth which includes a summary of our key initiatives for fiscal 2016, ‘17 and ‘18. I think many of you may recall that the format on slide 18 was originally introduced at our 2014 investor conference and really what it’s designed to do is to summarize the key initiatives each year that support our annual 5% to 9% NFE and 6% to 8% dividend growth target. And so when you look at the slide you will see details for fiscal 2016 and then as you move into fiscal ‘17 and ‘18 you will see it will be the initiatives from ‘16 plus the additional initiatives that you see in ‘17 and ‘18. So I just want to take a moment to summarize that. The growth plan through fiscal ‘18 is based upon strong customer growth, infrastructure investments, regulatory initiatives at New Jersey Natural Gas that will benefit both customers and share owners. We continue to work collaboratively with our regulators on our initiatives that benefit not only our share owners, but also our customers. We also expect to benefit from consistent revenues from our midstream investments; we’re focusing on diversifying CEVs distributed power portfolio combined with improvements in the SREC market fundamentals and the extension in both investment tax credits and production tax credits. And finally we will continue to take advantage of expected natural gas demand growth and price volatility at NJR Energy Services while at the same time providing producer an asset management services. When we look at our strategy, and we look at our fundamentals they remain strong and we think they provide the opportunities for future growth. But as always as I close I want to say thank you to our nearly 1,000 employees for their continued dedication and commitment to our company and our customers. Without their efforts we would not have achieved the excellent results we reported this morning, without everything that they do every day we would not have the strong fundamentals that we have for the future. Our employees are the foundation of our company and I am grateful for what they do every day. So, thank you for your time today and we are ready to take your questions and comments. Question-and-Answer Session Operator We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mark Barnett with Morningstar. Please go ahead. Mark Barnett Hey, good morning everybody. Larry Downes Good morning, Mark. Mark Barnett Congratulations Pat and Glenn first of all get that out of the way. Patrick Migliaccio Thank you, Mark. Dennis Puma Thank you. Mark Barnett Just a couple of quick things here, one on the just the minor item on the rate case, but you had a number of ways to kind of generate incentive extra margin from the utility. Do you think that any of that is set to change following a new rate regime or should we generally be expecting about a steady performance there? Larry Downes Mark, we don’t expect any of that to change. Mark Sperduto was in the room. Do you want to add anything to that? Mark R. Sperduto No, I think what you might be referring to are the BGSS incentives as well as our CIP. Those two regulatory initiatives have been decided and they are continuing right through the right case without any change. There are recent decisions in both of those areas. Mark Barnett Right. I just kind of from a bigger picture just wanted to get your sense of how that would change with a new fixed rate. But that sounds like no problem there. Couple of quick questions on the Ringer Hill projects, you mentioned that it was hedged for 15 years with an industrial uptick or so two things, one, generally how fixed do you view the revenue contribution from that project? And then two, how do you view your own sort of cost of capital and hurdle rate with an industrial offtake or versus a utility offtake there? Larry Downes Mark can we ask Pat to respond to that and we also have with us Stan Kosierowski who heads up CEV. So they will take your question. Pat? Patrick Migliaccio Good morning, Mark. So we hedged the majority of the output on that project. The Ringer Hill project through that agreement. And so while we didn’t disclosed a specific number rest assured the majority of the power is hedged. In terms of the cost of capital assumptions relative to the industrial partner the counter party choose not to be named on our press release, industrial partner was as close as we could come to describing their line of business. But we don’t consider the credit quality of the counter party in our return calculations and there are credit protections in the agreements with the counter party. So the credit quality deteriorated. I don’t know if Stan has anything to add. Mark Barnett Okay. Just this is sort of a growing trend with some of the more distributed generations I was just curious to see your kind of framework for analyzing this kind of a project when your offtake was not sort of fully regulated utility. But appreciate that guys. Thanks. Operator The next question comes from Brian Russo with Ladenburg Thalmann. Please go ahead. Brian Russo Hi, good morning. Larry Downes Good morning, Brian. Brian Russo So just to clarify the wind farm announced last night that was assumed in your capital forecast, CapEx forecast, correct? Patrick Migliaccio Yeah, Brian. This is Pat Migliaccio. That’s correct. Brian Russo Okay. And with the PGC and ITC extension clearly there is upside opportunities and upside CapEx opportunity. How much incremental CapEx do you think you can handle without needing significant amount of equity to funding? Larry Downes Brian, this is Larry. I think at this point what we are doing is as you know just as I said we had really assumed that we would not have the ITC and the PTC and that with the CapEx numbers that we were putting out there in the forecast. Now that this is in place what we’ll be doing is a complete let’s see at the portfolio and the distribution between wind and solar. There may be some changes there, but what will not change is the 10% to 20%. Brian Russo Got you, okay. And the SREC hedges slide and average price it looks like the hedges percentage basis increased and so did the average prices maybe you could just talk a little bit more about what you are seeing in that market in terms of pricing et cetera? Patrick Migliaccio Sure Brian. This is Pat Migliaccio again. We’ve seen over the course of the last several weeks certainly strengthen in the SREC market reflecting the BGS auctions and the purchasing behavior that leads up to the BGS options in the state of New Jersey. So to put things in perspective energy years ‘16 and ‘17 are trading in a bid ask between say 285 and 295 over the course of the last several weeks. So as you might imagine we’ve been aggressively hedging given those market prices. Because they are near 90% of the SACP, which is the penalty rate the PLSCs pay if they don’t acquire those SRECs. Larry Downes Brian we also and we guided to this in a lot of detail at the October Investor Meeting. We spend a lot of time internally understanding the market and where it is relative to the renewable portfolio standards. So as we said our expectation was that there would be some improvement in the SREC market fundamentals and we’re seeing a little bit of that right now. But internally when we’re making our hedging decisions we’re not looking take an enormous [ph] amount of risk on the movement of SREC prices and you can see that reflected in some of the hedging strategies and decisions that we’ve made. Brian Russo Okay. And you mentioned PennEast the FERC filing is it still considered on schedule? Larry Downes Yeah as we’ve disclosed right now, we’re going through the FERC process and expecting to get the FERC certificate. So there is no change to the schedule right now. Brian Russo And then lastly with the decline in natural gas, what kind of offset do you think there is to the $147 million base rate increase, which on a percentage basis is fairly large? Larry Downes I’m going to ask Mark Sperduto to talk about that. Mark R. Sperduto Well the system that for gas cost each June and coming up in this June we’ll do a forecast of our gas cost. And that forecast will coincide approximately with the timing of our base rate case increase. So until that time, as mentioned gas prices have been historically low and those types of prices would be reflected contemporaneously with the change in our base rate case increase this coming October-November timeframe. Larry Downes So Brian I think at this point it’s impossible to really predict that with the specificity right now. Brian Russo Okay. And then lastly I noticed midstream first quarter ‘16 was up year-over-year, but yet you sold Iroquois. I think you mentioned Steckman Ridge growth. Maybe you could just add a little bit more color to that. Larry Downes Yeah Brian, Pat gave without – Steckman Ridge provided – more than offset the decline of revenue that we saw from the difference in dividend income on our Dominion Midstream units versus the income from Iroquois and principally the same fundamentals that we see that drive the solid performance of NJRS are driving the performance of Steckman Ridge. So you’ve got some spreads in the Marcellus area that are leading to higher hub services and storage revenue at least in the short-term in Steckman Ridge. Brian Russo Great, thank you. Larry Downes Yeah. Operator [Operator Instructions] As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Dennis Puma for any closing remarks. Dennis Puma Thank you, Gary. I want to thank everyone for joining us again today. As a reminder, a recording of the call is available for replay on our website. Again we appreciate your interest and investment in New Jersey Resources. Thanks have a great day. Bye. Operator The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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