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New Jersey Resources’ (NJR) CEO Larry Downes on Q3 2015 Results – Earnings Call Transcript

New Jersey Resources Corporation (NYSE: NJR ) Q3 2015 Earnings Conference Call July 31, 2015 09:00 a.m. ET Executives Larry Downes – Chairman, Chief Executive Officer Glenn Lockwood – Chief Financial Officer Dennis Puma – Investor Relations Analysts Spencer Joyce – Hilliard Lyons Operator Good day and welcome to the New Jersey Resources Corporation, Third Quarter Fiscal 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Dennis Puma with Investor Relations. Please go ahead. Dennis Puma Thank you Rocco and good morning everyone. Welcome to New Jersey Resources’ third quarter fiscal ‘15 conference call and webcast. I’m joined today by Larry Downes, our Chairman and CEO; Glenn Lockwood, 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 meaning of the Private Securities Litigation Reform Act of 1995. We wish to caution listeners on the call that the assumptions forming the basis for forward-looking statements include many factors that are beyond NJR’s ability to estimate or control 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 on our Form 10-Q to be filed on Monday August 3. Both of these items can be found at sec.gov. NJR does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. I’d also like to point out that there are slides accompanying today’s discussion that are available on our website and were also filed on our Form 8-K this morning. With that said, I’d 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 today. For those of you who have seen this morning’s earnings release you know that we are continuing to perform well during fiscal 2015. And through my presentation this morning I will be discussing our future and I will be making forward looking statements. Our actually results will be effected by many different factors, including those that we’ve listed on slide one. The complete list is included in our 10-K and I would ask you to please take the time to review those carefully. Also as noted on slide two, I will be referring to certain non-GAAP measures such as net financial earnings or NFE, as I discuss our results. We believe that NFE provides a 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 are discussed more fully in item 7 of the 10-K and also I would ask you to take your time to review those disclosures carefully as well. Moving to slide three, this morning we announced net financial earnings of $2.5 million, which was $0.03 per share for the third fiscal quarter of 2015. That compared with $4.5 million or $0.05 per share last year. For the nine months NFE totaled nearly $157 million or $1.84 per share and that compared with $196.3 million or $2.33 per share for the first nine months of fiscal 2014. Glenn will review our segment results in more detail, but in looking at our results this year you can see that our primary businesses are performing either in line with or exceeding our original expectations. Our better fiscal 2015 NFE performance was driven by steady growth from our two regulated businesses, New Jersey Natural Gas and NJR Midstream, improved performance by NJR Energy Services compared with our original NFE guidance and although they are lower than last year, NJRES is having another excellent year. And finally, we continue to seek solid contributions from Clean Energy Ventures. Moving to slide four, this morning we also increased our fiscal 2015 NFE guidance range to $1.70 to $1.80 per share from $1.65 to $1.75 per share. As you may recall we raised guidance twice earlier in the year as a result of NJRES performance, which has been better than expected because of our team’s ability to take advantage of opportunities that were created by cold weather. In fiscal 2015 we currently expect our regulated utility and mid-stream businesses to contribute between 55% and 70% of total NFE and then return to 65% to 80% in fiscal 2016 and beyond, and we currently expect NJRES to contribute 20% to 30% of NFE in fiscal 2015 and also return to 5% to 15% in fiscal 2016 and beyond. On slide five, I just want to summarize our long term growth strategy. First and foremost New Jersey Natural Gas will remain the primary driver of our strategy and our performance. We will comprise the majority of our earnings, assets, people and capital investment. Infrastructure projects such as SAFE and new customer additions will drive our rate base growth. Our mid-stream investments will also contribute to our regulated earnings. Combined our regulated businesses are currently expected to represent 65% to 80% of total NFE is fiscal 2016 and beyond. NJR Energy Services will continue to provide fiscal and producer natural gas services and is currently expected to contribute between 5% and 15% of total NFE in fiscal 2016 and beyond. Continuing on slide six, with Clean Energy Ventures we will provide renewable electricity from our solar and wind investments. We are diversifying our earnings within this business, mainly through wind investments as well as stable SREC fundamentals. We currently expect NJR Clean Energy Ventures to provide 10% to 20% of NFE in fiscal 2016 and beyond. In home services we continue to provide steady earnings accounting for between 2% to 5% of total NFE. At the same time our annual dividend growth goal remains at 6% to 8% with a targeted payout ratio of 60% to 65%. And with that summary, I will now turn it over to Glenn and he will review the quarterly results. Glenn. Glenn Lockwood Thanks, Larry, and good morning everybody. Moving to slide seven, quarterly results at New Jersey Natural Gas reflect continued customer growth, increases in our BGSS incentives and regulatory initiatives such as the SAVEGREEN Project and SAFE. [RISE’s] [ph] better than expected results reflect lower transportation and storage demand fees. Clean Energy Ventures weaker comparisons were due primary to last year’s results, including the one-time $9.9 million credit support payment related to a change in ownership at one if its commercial solar projects. This year we added one grid-connected and one net-metered system during this fiscal third quarter and placed 196 residential systems into service through our Sunlight Advantage program for a total of 6.2 megawatts. Increased revenue from Steckman Ridge was the primarily responsible for the higher Midstream earnings. Weaker results from Home Services’ reflected lower equipment sales and installations. On slide eight we invested $26 million to add 5,750 new customs to our system during the first nine months of fiscal 2015 and we are on target to add about 7,800 customers for the year. We remain focused on the safety and reliably of our system and have invested about $50 million on system maintenance so far this year. At the same time we have invested more than $27 million in our SAFE program, which allows us to accelerate the replacement of our cast iron and bare steel. Though June 30 we have replaced approximately 192 miles of the 276 miles of pipe that were approved by the BPU in 2012. Final preparations are being made to open our first NGV station and we are on track to open all three stations by the end of the fiscal year. Through our NJ RISE program we will invest over $100 million over the next four years for storm preparation and mitigation projects in the most storm prone portions of our service territory and we have begun modest spending on the program this year. And our Liquefaction project in Howell, New Jersey will give us the ability to liquefy pipeline gas at our storage site for our peak date needs and create benefits for both our customers and share owners. Through June we have invested $11 million on site preparation and equipment manufacturing for this facility. We have two petitions pending with the BPU regarding our Southern Reliability Link project. That will add a second interstate pipeline connection to our service territory in Ocean County to further support safety, reliability and resiliency. And finally through our SAVEGREEN energy efficiency program, which was recently extended through July 2017, a total of 38,000 customers have upgraded to high efficiency equipment since its inception in 2009. And very importantly, I’d like to remind everybody that about half of these capital expenditures are currently earning a return. Moving to slide nine, NJNG added 5,750 customers in the first nine months, more than 11% above last year. 2,793 of these new customers were related to new construction compared with 2,463 in the same period last year. Approximately half of the new customers converted from other fuels, primarily oil. Our conversion market continues to do very well as evidenced by a 10% increase over last year. These new customers are expected to contribute approximately $3.4 million annually to utility gross margin, and going forward we expect to add between 15,000 and 17,000 new customers over the next two years, representing an annual growth rate of about 1.6%. As you can see on slide 10 we continue to prepare for our base rate case which will be filed in November 2015. The filing was required by the BPU as part of the SAFE approvals. We believe the profits will take approximately nine months and conclude in early fiscal 2017. To-date we have retained consultants for our cost of capital, depreciation and cost of service studies and begun our test year, which will be July 1, 2015 through June 30, 2016. Moving to slide 11, while lower than last year when we experienced extremely cold winter weather, NJRES’ results this year have significantly exceeded original projections. Our team has done an excellent job meeting our customers’ needs during periods of extreme weather and has developed a portfolio of competitively priced storage and transportation assets. According to Natural Gas Intelligence, we are now the 16 th largest gas market in North America. Our better than expected year-to-date results were driven primarily by colder than normal weather that created short term increases in natural gas demand, as well as price volatility, which in turn generated higher than expected gross margin for RES. As previously noted, we currently forecast RES’ contributions to NSE to return to a range of 5% to 15% in fiscal 2016 and beyond. Okay, turning to NJR Clean Energy Ventures on slide 12, we continue to build out of our inventory of solar projects, while we construct our third wind project. Our strategy is focused on diversification of our investments across this business. We have built a strong portfolio of solar in New Jersey, with over 100 mega watts of capacity now in service. During the first nine months of fiscal 2015 we placed $53.3 million of ground mounted solar projects totaling 20.5 megawatts into service. The six megawatt grid connected system is under construction and is expected to be placed into service in our fourth fiscal quarter. On the residential side our Sunlight Advantage program remains a popular choice for consumers and we remain among the largest providers in the state. In the first nine months of fiscal 2015 we added 468 customers totaling 4.5 megawatts capacity, bringing the total number of customers since inception to more than 3,600. We have advanced our diversification into onshore wind with projects in Montana, Iowa and Kansas. Wind assets now total almost 30 megawatts worth 22% of our total portfolio as Carroll Area, our second wind project came online in late January. The third project, the 48 megawatt Alexander Wind Farm is currently under construction. Turning to slide 13, you can see that monthly solar capacity additions in the state have declined significantly from their peak in early 2012, which combined with the annual increase and the renewable portfolio standards have supported [indiscernible] increase in SREC prices shown on the graph on the right. Recently we have seen SREC prices over $235 and we believe these fundamentals will continue. In addition, as shown on slide 14, we have been actively hedging our expected SREC sales. The red line on the chart represents SRECs expected to be generated from our existing portfolio. As you can see, 100% of our SRECs for fiscal 2016 are hedged and we have been actively hedging [future years] [ph] as well. We believe that increases in the number of SRECs to be generated, our hedging program, expectation of continued strength in SREC prices and expected earnings from our wind investments, all support our forecast of 10% to 20% of our total NFE coming from CEV in fiscal 2016 and beyond. Now on slide 15, it shows we’ve provided an update of our capital expenditures for CEV. We have spent about $110 million through June 30, 2015 on the solar and wind projects I detailed a few slides ago. Construction continues at our third wind project, the Alexander Wind Farm in Kansas, which is expected to come online during the first fiscal quarter of 2016. When Alexander is completed, we will have about 78 megawatts of wind assets. I also wanted to reiterate our strategy to mitigate the anticipated reduction in ITCs from 30% to 10% in 2017. As I just demonstrated on the previous slides, we are committed to diversifying our clean energy portfolio, mainly the onshore wind investments. This combined with growing SREC revenue and expected contributions from our other business segments will enable us to continue to grow through this transition. In looking at our cash flow forecast on slide 17 you can see the future benefit of the higher than expected earnings that we have been generating in ’14 and ’15. We believe now that our capital program can be properly financed over the next two years with a modest amount of new equity, while maintaining appropriate credit metrics for our rating. Now I’ll turn it back to Larry for some closing thoughts. Larry Downes Thanks Glenn. I’d like to conclude our call today by reviewing slide 18, which summarizes our key strategic initiatives through fiscal 2018. These initiatives support our annual 5% to 9% NFE and 6% to 8% dividend growth targets. So you can see the primary components of our growth plan through fiscal 2018, our strong customer growth, infrastructure investments and regulatory initiatives that will benefit both our customers and our share owners. It will extend our mid stream strategy including PennEast and we intend to diversify clean energy ventures distributed power portfolio combined with stable SREC market fundamentals to provide steady income streams and will take advantage of expected natural gas demand growth and price volatility in NJRES, while providing producer and asset management services. I think as you can see, our fundamentals remain strong and we provide the opportunities for future growth. So as I close today, I want to thank our nearly 1,000 employees for their continued hard work and dedication. I just want to point out because of our employees Jersey Natural Gas was once again named the most trusted brand in the east region by Cogent Reports and that was among all natural gas utilities. Without the efforts of our employees, we could not have achieved the excellent results that we’ve recorded thus far for fiscal 2015 and the strong fundamentals we have for the future. Our employees are the foundation of our company and as always I’m grateful for everything they do every day. And so thank you all for your time today and we will look forward to your questions and comments. Question-and-Answer Session Operator Thank you. [Operator Instructions] Our first question comes from Spencer Joyce of Hilliard Lyons. Please go ahead. Spencer Joyce Hey, good morning guys. Congrats. Good, solid quarter here and another beaten raise. Is that three times? Glenn Lockwood Third time this year, yes it is. Spencer Joyce Yes listen, just a couple of quick ones from me. It seems like a pretty simple quarter here, but did I hear correctly that Alexander is still online to be completed this year. So looking at fiscal, or first quarter of fiscal ’16 for some financial impact there. Glenn Lockwood Yes, it’s actually – Spencer, this is Glenn. It’s in the fourth quarter of calendar ’16, but it will be first quarter of calendar ’15, our first quarter fiscal ’16 that it comes online. Spencer Joyce Okay, perfect, so that’s on schedule. The other item, I know we are looking for a little less solar CapEx next year and I notice the pipeline under construction is about as low as we’ve seen over the past seven, eight quarters. Has there been any change in like the pipeline of available projects out there. I mean has there been any shift in market dynamics or does that really just reflect kind of your guys’ belief that you want to do a little bit less next year. Glenn Lockwood Well, that’s part of the overall strategy. Remember the majority of that solar spending is related to this grid connected projects. The residential market is fairly steady year-over-year. The grid connected CapEx is really a tie to the schedule of those particular projects getting put into service and we’ll just have more of those projects put in this year than we expect to have next year. Spencer Joyce Okay, perfect. Again, good quarter and we’ll talk soon. Glenn Lockwood Thanks Spencer. Operator [Operator Instructions]. Seeing no further questions, I’d like to turn the conference back over to management team for any final remarks. Larry Downes Okay, thank you Rocco. Thanks everybody for joining us today. As a reminder, a recording of the call will be available on our website. Again, we appreciate your interest and investment in New Jersey Resources and enjoy the rest of your day. Good-bye. Operator And thank you, sir. Today’s conference has now concluded and we thank you all for attending today’s presentation. You may now disconnect your lines. 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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SJW Corp (SJW) CEO Richard Roth on Q2 2015 Results – Earnings Call Transcript

SJW Corp (NYSE: SJW ) Q2 2015 Earnings Conference Call July 30, 2015 13:00 ET Executives Suzy Papazian – General Counsel Richard Roth – Chairman, President & CEO James Lynch – CFO Analysts Michael Gaugler – Janney Montgomery Operator Welcome to the SJW Corp. Second Quarter 2015 Financial Results Call. [Operator Instructions]. I would now like to introduce your host for today’s conference Suzy Papazian, General Counsel. Please go ahead. Suzy Papazian Thanks Operator. Welcome to the second 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 yesterday’s press release and this presentation may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in void [ph] it’s experience, it’s circle trends, current conditions and expected future development 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 description of some of the factors that could cause actual results to be different from statements in the presentation, we refer you to the press release and to our most recent Form 10-K and 10-Q filed with the Securities and Exchange Commission, copies of which may 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 October 26, 2015. 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. On the call with me today are Jim Lynch, our Chief Financial Officer and our Palle Jensen, our Senior Vice President of Regulatory Affairs. SJWs second quarter performance reflected lower usage as a result of water use restrictions imposed due to the California drought, while San Jose water company continues to provide high quality and reliable water service the company has as required by the California Public Utility Commission implemented a drought contingency plan that includes water allocations and drought surcharges for only the second time in the company’s 149 year history. San Jose, water company drought contingency plan established it’s monthly allocation for residential and landscape customers based upon 2013 average use less 30%. The reduction requested by the Santa Clara Valley Water District, Santa Clara counties water resource management agency. In contrast the drought in Texas is officially over as a result of record rainfall in 2015 that helped refill parched reservoirs and aquifers [ph]. SW, Texas [ph] our Texas water utility continues to experience robust organic customer growth since it’s acquisition in 2006 SJWTX has grown from approximately 7000 to 12000 connections owing to an aggressive acquisition program and strong organic customer growth. The pace of organic growth continues to accelerate with June marking a single month record for new connections with strong customer growth, a robust portfolio water supplies and rates in place at least for 2017, we’re pleased with this small but growing part of our SJW. San Jose Water Company’s 2015 general rate case application continues to be processed by the CPUC. Evidentiary hearings to address all remaining unsettled issues took place in June and we expect the timely decision that will establish new rates for 2016 through 2018. In the event of the timely decision is not received San Jose Water Company has filed to activate the interim rate mechanism that would provide the company with interim rate relief, retroactive to January 1st, 2016. Jim Lynch will now discuss more detail, SJW second quarter and year-to-date results as well as other financial matters. After Jim’s remarks I will provide additional information on our regulatory filings and other key operational and business matters. Jim? James Lynch Net income for the quarter was 7.5 million or $0.36 per diluted share. This compares to 6.8 million and $0.34 per diluted share for the second quarter of 2014, year-to-date net income was 12.2 million or $0.59 per diluted share compared to 7.8 million or $0.38 per diluted share for the same period in 2014. Second quarter revenue increased to $72.4 million, a 3% increase over the second quarter of 2014 and for the first six months of 2015 revenue was a 134.5 million or an 8% increase over the first six months of 2014. Our quarterly and year-to-date results reflect the impact of new rates authored by the California Public Utilities Commission last August. The rate increases contributed $11.8 million in new revenue in the second quarter and 20.8 million year-to-date. In addition year-to-date results include 1.9 million an additional first quarter revenue related to the California Commissions decision on the effective date of our 2014 rates. Second quarter and year-to-date results also reflect the impact of lower usage in our California service area as a result of drought related conservation activities. As Rick mentioned the Santa Clara Valley Water District said it’s 2015 water usage target at 30% below 2013 usage levels. This was followed by the CPUCs authorization in June of 2015 to activate San Jose water companies water shortage contingency plan that includes mandatory usage reductions and drought surcharges. Overall customer usage declined 13% in the second quarter resulting in a $9.3 million reduction in revenue compared to the second quarter of 2014. Year-to-date customer usage declined 10% resulting in a $13.2 million revenue reduction compared to the same period in the prior year. Compared to 2013, our usage in our California service area is down approximately 23% through the first six months of 2015. The water shortage contingency plan provides for the establishment of a drought memorandum account to track drought surcharges. Amounts collected in the account will be used to offset future amounts recorded in the company’s mandatory conservation revenue adjustment account or MCRAM, recall that the MCRAM was established to track revenue shortfalls along with the mandatory conservation memorandum account or MCMA account to track operational and administrative cost associated with implementing the water district 2015 and 2014 conservation goals. In March of 2015, the company filed it’s first filing under the MCRAM for the recovery of approximately 9.6 million in authorized revenue lost due to conservation net of the MCMA accounts. The filing covered amount accumulated in the accounts from March 31st 2014 through December 31, 2014. The company will recognize amounts requested in the filing net of certain supply cost balances once collection is authorized by the CPUC. We anticipate authorization will occur during the second half of the year. Future amounts accumulated in the accounts will be recognized once recovery or refund is determined to be probable. The drought memorandum account MCRAM and MCMA will remain in effect until state order drought water restrictions are lifted. Turning to water production second quarter operating results benefited from the use of approximately 550 million gallons of surface water from San Jose Water Company’s Lake [indiscernible]. This compares to less than 60 million gallons used in the second quarter of 2014. Through the first six months of 2015, we used 1.5 billion gallons compared to 92 million gallons in the same period of 2014. The increased surface water supply resulted in a $1.2 million reduction in water production expenses for the quarter and 3.3 million year-to-date. We do not anticipate any meaningful benefit from surface water supplies through the remainder of 2015. Production cost also benefited from lower usage in both our California and Texas service areas. In California due to the drought and in Texas due to higher than normal rainfall experienced in our service area during the first half of the year. As a result of this drought and usage we experienced lower production cost of 7.4 million for the quarter and 8.9 million year-to-date. This benefit was partially offset by the impact of increases in purchase water expense and ground water production charges of 2.3 million for the quarter and 3.8 million year-to-date. Non-production operating expenses included an 800,000 increase for the quarter and $1.6 million increase year-to-date in pension cost. The increase was driven primarily as a result of the decline in the discount rate from December 31, 2013 to December 31, 2014 and new mortality table is used to calculate the expense. In addition both the quarter and year-to-date include higher cost incurred in connection with our 2015 California general rate case and conservation activities in our California service area. Another point of note in the second quarter of 2014 the company recorded a $2 million gain on the sale of certain investment securities and a $880,000 tax benefit on the recognition of enterprise owned tax credits. No similar amounts were recorded in 2015. Turning to our capital expenditure program we added approximately 21 million in utility plant during the second quarter which brings our 2015 total to $37 million or approximately 30% of our 2015 utility plant capital expenditures including our Montevina plant retrofit project we are on target to add approximately a $125 million in utility plant in 2015 growing rate base in both our California and Texas service areas. From a liquidity perspective year-to-date cash flows from operations increased by approximately $20 million or 80% due in large part to higher income and the collection of a $6 million income tax receivable that was generated at the end of 2014. In addition we experienced a $6 million benefit from the collection of true-up revenue recognized in 2014 in connection with our 2012 California rate case decision. We recall that $46.5 million in net true-up revenue is being collected over a 36 month period that commenced in October of 2014. At the end of the quarter we had $76.8 million available under our bank lines of credit for short term financing of utility plant additions in operating activities. The borrowing rate on credit line advances during the second quarter averaged 1.5%. With that I will stop and turn the call back over to Rich. Richard Roth Thank you, Jim. In response to the governor’s and the state water resources control board’s mandatory state wide reduction of 25% for urban water systems. On May 11, 2015 San Jose Water Company filed with CPUC to activate schedule 14.1, an allocation based “water shortage contingency plan with staged mandatory reductions and drought surcharges.” Based upon a 30% reduction from 2013 usage. The activation of schedule 14.1 allowed San Jose Water Company to comply with current CPUC requirements and align restrictions with those mandated by local government agencies thus achieving greater consistency and limiting customer confusion. Although Governor Brown’s executive order caused for a state-wide 25% water reduction, the 30% requested by the Santa Clara Water District the regions water resource management agency more appropriately reflects local water supply conditions. Schedule 14.1 was approved by the CPUCs water division and became effective on June 14th. Subsequent to the approval the office of [indiscernible] advocates requested a review of San Jose Water Company’s drought contingency plan as they did with other Class A water utilities drought contingency plans. Our review request requires the water division to issue a resolution finding the program just and reasonable and we will be subject to approval by the full commission. CPUC action on RAs request will likely not occur until late August at the earliest and until that time the program remains in place as adopted. As you mentioned we have in place the mandatory conservation revenue adjustment memorandum account or MCRAM to track revenue lost due to reduced customer usage resulting from formal declaration of water conservation requirements. This memorandum account provides a high degree of assurance that any loss of revenue, net of production cost resulting from mandatory conservation rules may be required through an [indiscernible] at such time that the memorandum account balance exceeds 2% of annual authorized revenue requirement. Additionally drought surcharges collected under schedule 14.1 will be credited to the loss revenue memorandum account to offset revenues shortfalls associated with reduced water usage. Drought surcharges in excess of lost sales will ultimately be refunded to customers after the drought in the manner authorized by the CPUC. The net effect of the MCRAM is that servicing water company has a strong revenue protection for sales loss due to the drought and related mandatory conservation rules. Both the California and Texas droughts have increased public awareness of the need for investments necessary to ensure adequate, reliable water supply, as well as the need to replace aging infrastructure. San Jose Water Company and SJW have been industry leader in making necessary and prudent investments in utility plan. SJW’s capital improvement plans is approved by the CPUC and the Public Utility Commission of Texas provided necessary rates to support investments totaling $108 million and rate based capital expenditures in 2015. These prudent capital outlays will replace mains, wells, reservoirs, and other critical infrastructure. To further emphasize this important point, SJW has from 2010 through June 30, 2015, and thus approximately $471 million in utility plan. Furthermore, SJW expects to invest subject to regulatory approval, an additional $662 million as part of our core capital improvement programs for 2015 throughout 2019 to ensure our water systems continue to deliver safe reliable and high quality water service to our customers. These investments directly correlate to an increase in rate base, the earnings for investor owned utilities. Additionally, in July, San Jose Water Company signed a definitive agreement to rebuild the Montevina Water Treatment Plant by employing a progressive design build approach along for operational flexibility. The company will be able to continue to optimize the use of available surface water during construction. Rate recovery is processed via annual advise set of filings and through completion in 2017. This project is on track to add a total of $62 million to utility plan. Structural water supply challenges are requiring SJW to quickly and effectively adapt to new mandates in usage patterns. SJW recognizes the critical need to engage in farm customers and other stakeholders of these mandates, how conservation efforts impact rates and the value of water. To that end, San Jose Water Company is executing a comprehensive customer communications program that speaks to these needs via a variety of communication platforms. Web based communications offer an effective and efficient tool to deliver timely and relevant customer information. San Jose Water Company is now six weeks into its draft contingency plan and we are pleased with the positive impacts our enhanced communication efforts are producing. San Jose Water Company recognizes that it is widely important to deliver exceptional customer service at all times, especially during the drought when we have asked our customers to increase their conservation efforts. Accordingly, we are continually analyzing and refining our business processes to find the resources required to comply with hiding regulatory oversight, address structural water supply challenges and continue to provide excellent water services at a reasonable price. Although there may be some regulatory lag in receiving final authorization to collect revenue due to loss sales, I believe SJW will emerge from the drought a better and stronger company, both financially and operationally. In dealing with the current drought, SJW has been forced to be operationally more flexible and innovative switching between various water supplies adapting to different levels of search water quality and effectively operating our water systems in widely varying conditions. Additionally, SJW recognizes that customer communication must now be a core competency. We are clearly on our way to building a first class customer communications function using multiple communication modalities. We are also making significant progress in increasing the speed and efficiency of customers interactions. Digital transactions now comprise the vast majority of all transactions at SJW. In summary, SJW are much from our experiences dealing with the drought which has furthered our capabilities to succeed and transfer demanding and difficult business and regulatory environments. Our systems are efficient and in good conditions, our investments have been prudent, and our business model is intelligent and durable. Over the long haul, SJW should continue to enjoy sustained growth and profitability, earnings and dividends for our shareholders. With that, I will turn the call back to the operator for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] And our first question comes from Michael Gaugler from Janney Montgomery. Your line is now open, please go ahead. Michael Gaugler Good morning, everyone. Richard Roth Good morning, Michael. Michael Gaugler Rich, something you didn’t really touch on and I guess it’s probably just because of the drought, is the real estate operations. And I want to appreciate an update there on what you’re thinking in terms of that line of the business? Richard Roth Sure. Michael, we’re in the process of gradually getting out of the business of real estate. We have some properties that are already in the process of being marketed and sold, and other ones for variety of reasons would be sold over the course of time. I think the critical factor here is just when the market is right, we don’t have to sell these assets but we will sell those assets when the market is right and when an attractive offer comes along. So, we think that the proceeds from the real estate will likely be reinvested in utility plan. We think that’s our core competency and so we’ll be gradually moving out of that business. Michael Gaugler Okay. That’s all I have. Thanks, Rich. Richard Roth Thanks. Operator Thank you. [Operator Instructions] And I’m not showing any further questions at this time. I would now turn the call back to management for any closing remarks. Richard Roth Thank you, and thank you everyone for listening. And we look forward to talking to you at the end of the third quarter. Operator Ladies and gentlemen, thank you for your participating in today’s conference. This does conclude today’s program. You may all 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. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

IDACORP’s (IDA) CEO Darrel Anderson on Q2 2015 Results – Earnings Call Transcript

IDACORP, Inc. (NYSE: IDA ) Q2 2015 Earnings Conference Call July 30, 2015 4:30 pm ET Executives Lawrence Spencer – Director of Investor Relations Darrel Anderson – President and Chief Executive Officer Steve Keen – Senior Vice President, Chief Financial Officer and Treasurer Analysts Paul Ridzon – KeyBanc Ashar Khan – Visium Asset Management Brian Russo – Ladenburg Thalmann Operator Welcome to IDACORP’s Second Quarter 2015 Conference Call. Today’s call is being recorded and webcast live. A complete replay will be available from the end of the day for a period of 12 months on the company’s website at www.idacorpinc.com. [Operator Instructions] At this time, I’d like to turn the call over to IDACORP’s Director of Investor Relations, Mr. Lawrence Spencer. Please go ahead. Lawrence Spencer Thank you, Liz, and good afternoon everyone. As you’ve probably seen, we issued our earnings release and Form 10-Q before the markets opened today. They’re both posted to the IDACORP website. We will be using a few slides to supplement today’s call, and you can also find those on our website. We’ll refer to those slides as we work our way through today’s presentation. On today’s call we have Darrel Anderson, IDACORP’s President and Chief Executive Officer, and Steve Keen, IDACORP’s Senior Vice President, Chief Financial Officer and Treasurer. We also have other individuals available to help answer your questions during the Q&A period. Before turning the presentation over to Steve, I’ll cover our Safe Harbor statement on Slide 3. Our presentation today will include forward-looking statements. While these forward-looking statements represent the current judgment or opinion of what the future holds, these statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. So we caution you against placing undue reliance on these forward-looking statements. Some of the factors and events that could cause future results to differ materially from those included in forward-looking statements are listed on Slide 3 and included in our filings with the Securities and Exchange Commission, which we encourage you to review. On Slide 4, we present our quarterly and year-to-date financial results. IDACORP’s second quarter 2015 earnings per diluted share were $1.31, an increase of $0.42 per share from last year’s second quarter. For the first six months of 2015, earnings per diluted share were $1.78, $0.35 greater than the same period in 2014. I’ll now turn it over to Steve to discuss the results in greater detail and review our 2015 key operating metrics. Steve Keen Thanks, Larry, and good afternoon everyone. On Slide 5 we show a reconciliation of earnings from second quarter 2014 to second quarter 2015. As you can see, net income over the period increased $21.6 million. This was largely due to improved retail sales volumes, the impact of the fixed cost adjusted or FCA methodology change and the tax benefit of an income tax deductible make-whole premium from Idaho Power’s recent first mortgage bond redemption. The heat wave in our service territory this June combined with dry spring weather resulted in recorded second quarter energy sales. The hot temperatures increased loads for air conditioning and the dry weather increased irrigation pump usage. As a result, operating income increased by $7.8 million. Changes to the FCA mechanism which were approved by the Idaho Public Utilities Commission in the second quarter were retroactive to January 01, 2015. Idaho Power recorded a $7.4 million benefit in the second quarter for the retroactive application of the FCA mechanism change to the first quarter. The calculations under the revised mechanism use sales associated with actual weather conditions as opposed to normalized weather condition under the prior mechanism. During this year’s second quarter, normal temperatures grow greater sales resulting in a $1.7 million decrease in FCA revenues compared to 2014. To help you understand the operation and potential future impact of the revised FCA mechanism which is now sensitive to weather conditions, we have included a discussion in the MD&A section of the 10-Q that we filed today. Customer growth increased revenues by $2.9 million as our customer account grew by 1.7%, also the $7.2 million decrease in income tax expense benefited this quarter’s earnings. As stated on our first quarter earnings release conference call, this resulted from the flow through tax benefit of the make-whole premium Idaho Power paid for the early redemption of first mortgage bonds originally due in 2018 but redeemed this quarter. The combination of these items resulted in a strong second quarter financial results we believe that positions the company well going into the second half of 2015. Moving now to slide 6, we show IDACORP’s operating cash flows for the first six months of 2015 and the comparable period in 2014 along with the liquidity positions at June 30. Cash flow from operations for this year’s first six months was $171 million, an increase of $8 million over the same period last year. Cash flows increased as a result of an $18 million increase in net income as well as from increased coal sales of Bridger coal company for the first six months of 2015, which resulted in a $6 million increase in distributed cash. Decreases in cash flow of $3 million occurred due to changes in deferred taxes and changes in taxes accrued and receivable and the remaining $10 million reduction in cash flows resulted from changes in working capital items such as unbilled revenues and prepaid expenses. IDACORP and Idaho Power currently have in place credit facilities of $125 million and $300 million respectively to meet short term liquidity and operating requirements. The liquidity available under the credit facilities is shown on the bottom of slide 6. Also, there are 3 million IDACORP common shares available for issuance under IDACORP’s continuous equity program. No shares were issued during the second quarter and we do not expect to issue new equity during the remainder of 2015 except for modest amounts relating to employee compensation plan. Turning now to slide 7, we continue to estimate 2015 O&M between $340 million and $350 million and we do not expect to amortize any additional accumulated deferred investment tax credits this year under the Idaho settlement stipulation. The 2015 capital expenditure range for Idaho Power remains between $300 million and $310 million. With the recent rainfall, we are tightening upward our projected hydro electric generation range from 5 million to 7 million megawatt hours up to a range of 6 million to 7 million megawatt hours. Finally, we are increasing our 2015 IDACORP earnings per share guidance range from $3.65 to $3.80 per diluted share up to the range of $3.75 to $3.90 per diluted share primarily to reflect the earnings drivers I mentioned earlier. The upper end of our guidance range is slightly above the 10% Idaho return on year end equity threshold and reflects the potential that Idaho Power could once again share benefits with Idaho customers under the current Idaho regulatory settlement stipulation, gets that level as it takes. I’ll now turn the presentation over to Darrel. Darrel Anderson Thanks, Steve, and good afternoon. I want to start today by acknowledging the passing of Idaho Public Utilities Commissioner, Mack Redford. As some of you may know, commissioner Redford passed away on June 30 unexpectedly. The Public Utilities Commission and the State of Idaho have lost an outstanding public servant. Commissioner Redford had served on the commission since 2007 and he was a skilled, fair and thoughtful arbiter from the bench. The Governor of Idaho C. L. Butch Otter announced today that Marsha Smith, a long-time Commissioner for the IPUC, will be re-appointed on an interim basis. In his announcement, he noted that her appointment will be effective immediately and will expire on January 15, 2016. At that time, a new commissioner will be appointed to replace her, pending Idaho Senate confirmation. Marsha Smith served as a Commissioner for 24 years before retiring last February. The two sitting commissioners both have a long history with the Idaho Commission and a deep background in utility issues. Commissioner Paul Kjellander has been a Commissioner since 2011 and previously was Commissioner from 1999 until 2007. Commissioner Kristine Raper served seven years as a Deputy Attorney General at the IPUC before her recent appointment. Now I’d like to move on to a discussion of topics related to the quarter. Last month, Idaho Power filed its 2015 Integrated Resource Plan, also known as the IRP. The preferred portfolio continues to include the addition of the 500 kilovolt Boardman to Hemingway or B to H transmission line which is proposed to run from the Hemingway substation near Melba, Idaho to Boardman, Oregon. The IRP provides for completion of B to H by 2025 which is a date based on a number of assumptions we include in the IRP prospects. We continue to advocate for and work towards an earlier in-service date for this critical resource as an earlier date has a number of benefits that might be lessened if the in-service date is delayed to 2025. Those benefits include increased reliability, mitigation of transmission constraint, environmental benefits from the import and export of renewable energy and lower permitting and construction costs and risk. Because of these benefits we are working for an in-service date as early as we can achieve. Additional components of the potential plan for 2025 and beyond are shown on slide eight, and include the possible early retirement of the North Valmy power plant in collaboration with the plant’s co-owner. Demand response programs, ice-based thermal energy storage and a new combined cycle natural gas plant. The IRP also considers the impact of anticipated power purchases from new solar projects. It is also fair to note that the IRP is a long-term planning tool completed every two years and near-term deviations from the assumptions in the plan could result in modifications to our resource needs. As you’ll see on slide nine, June’s very warm weather led us to near record fee customer demand. On June 30, Idaho Power System load reached 3,402 megawatts which is 5 megawatts short of the all-time record of 3,407 megawatts set in July 2013. It is interesting to note that the 2013 record was set at a time when we did not have any active demand response programs. This year, we had two demand response programs that were deployed on the peak demand day for a total of 67 megawatts. Without the programs deployed, we would have exceeded our all-time peak load level. Idaho Power continues to expect strong customer growth in the service area in the near-term and remains supportive of economic development initiatives aimed at sustainable levels of growth. During the first six months of 2015, Idaho Power’s customer count grew by over 4,500 customers and for the 12-month ended June 30, 2015 the customer growth rate was 1.7%. This is shown on slide 10. According to preliminary Idaho Department of Labor data for June 2015, total employment in the service area was more than 474,000 compared with around 460,000 at the end of last year, an increase of over 3% in the last six months. The unemployment rate for our service area was 3.9% compared to the June 2015 U.S. unemployment rate of 5.3% according to U.S. Department of Labor data. Another key economic indicator is expected growth in gross area product. Moody’s Analytics has stated that as of June 2015, the anticipated growth in gross area product for Idaho Power service area for 2015 and 2016 is 4.6% and 5.4% respectively. These are up from this year’s first quarter estimate of 3.2% and 3.8% of 2015 and 2016 respectively, representing an increase of over 40% in the estimated growth rate. Further evidence of our economic development potential is found in a six county region known as the Magic Valley located in the South Central Park of our Idaho service area. This area was selected as a top 12 U.S. manufacturing community under the investing and manufacturing communities partnership initiative sponsored by the U.S. Commerce Department. As a result of this federal designation, a number of significant benefits may be available to Southern Idaho including support from 11 federal agencies and more than $1 billion available in federal economic development assistance. Also this month, Idaho is recognized by Kiplinger as number three on the list of 10 states with the fastest job growth in 2015. We view all of these to be positive economic indicators in our service area that we expect will help drive load growth. Finally, I will touch on our weather outlook heading into fall as reflected on slide 11. For August through October, according to Nova, we are looking at a 33% to 40% chance of above normal precipitation and a 40% to 50% chance of above normal temperatures in much of our service area. And with that, I and others on the call will be happy to take your questions. Question-and-Answer Session Operator Thank you. Ladies and gentlemen, we will begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Paul Ridzon with KeyBanc. Your line is now open. Please go ahead. Paul Ridzon Good afternoon, congratulations on the quarter. Darrel Anderson Thanks, Paul. Steve Keen Thanks, Paul. Darrel Anderson Appreciate that. Paul Ridzon Have you booked any provisions for refunds at this point or do you need to get through the quarter behind you? Steve Keen Paul, at this point, we have not booked any provision for sharing that’s what you mean as the sharing component and as we looked at it, as I said at the upper end of our range incorporate that possibility but it’s not sure enough that we booked anything. Looking at this quarter, weather certainly helped and with half the year left, we kind of need to see where that goes. Paul Ridzon How is still our weather? Steve Keen July has not been strong like June. I haven’t seen any reports on where it’s stacked up against normal but certainly it’s not a record month like June was. Darrel Anderson Paul, it’s been a bit of a roller coaster. We started out warm, we got cool and now it’s warm again. So cool, cool relatively speaking but we’re – I think we’re headed into triple digits here in the next couple of days, so we’re headed back into warming trend it looks like so — Paul Ridzon And always kind of surprised to see a little bit of a disparity between kind of the impact of the new FCA mechanism. You had a nice pickup from the first quarter but the impact on the second quarter wasn’t that meaningful relative, is it something symmetry or? Darrel Anderson Right. I would say that compulsive [ph] it was a little surprising to me at first. I asked the same question but as you look at it, first quarter there was much more impacts on the residential component of our revenues, second quarter affected residential again although obviously not as much as it did downward in the first quarter but some of our pickup came out of the irrigation side and irrigation is excluded from the FCA. It’s not included as a component and so that the upside there was not – didn’t get offset with any sort of an FCA reversal. Paul Ridzon Okay. That makes sense. Is this FCA mechanism applicable to commercial and industrial as well? Darrel Anderson No. It’s our commercial, it’s our residential on small commercial, so it applies to both. Paul Ridzon Okay. Thank you very much. Darrel Anderson Thanks, Bob. Operator Our next question comes from the line of Ashar Khan with Visium Asset Management. Your line is now open. Ashar Khan Good afternoon and congratulations on good quarter. Darrel Anderson Thanks, Ashar. Steve Keen Hi, Ashar. Ashar Khan Hi, how are you guys doing? Could you see minus as we getting to that part of the year on the dividend policy if you can just remind us what is the rate of change that you have indicated as we enter into that season? Darrel Anderson Sure. Thanks, Ashar. Thanks for that question. This is Darrel. So as we have stated previously, our target payout ratio is 50% to 60% of sustainable earnings. And so we will be taking out up with the board at the September meeting and what we have stated publicly is that we anticipate an increase of at least 5% from where we are at today. And so we will be taking this discussion up with the board in September with the expectation that we will update all of you once we have a decision on that. And I think what’s important there is we continuing to take a look at the 50% to 60% of sustainable earnings, and that we will look at when we review with the board. Obviously we are having a good year this year, we had some one-off items incorporated into this year. This year, I think you know how our mechanisms work with respect to the ADITC. Those numbers are all based on year end equity and so as our equity grows, which it’s growing as earnings grow then that potentially has an impact for future years. So we will take all of that into consideration when we look at what that dividend recommendation will be in September. Ashar Khan Okay. And can I just ask you this dividend, do you look at I’m assuming the way you described it. You will be looking at like ‘16 earnings? Is that right because the dividend increases like three quarters for next year and then the one quarter this year, is that a fair way to look at it? Darrel Anderson We will look at where we are at this year. We will also take a look at looking forward as to what earnings look like going forward combining with what cash flows would like. So all of that will be taken into consideration in coming up with the recommendation to the board. Ashar Khan Okay. Okay. I haven’t seen your Q, so I apologize but any change in CapEx for ’16 or ’17? Steve Keen There is no change at this point. We are in the middle of reviewing future CapEx right now. We don’t have any update provided externally but that’s what we do this time of the year as we roll through ’15. We are taking a hard look at ’16 and beyond. Ashar Khan Okay. Okay. Thank you so much. Darrel Anderson Thanks, Ashar. Steve Keen Thank you. Operator Our next question comes from the line of Brian Russo with Ladenburg Thalmann. Your line is now open. Brian Russo Good morning, I’m sorry, good afternoon. Darrel Anderson Hi, Brian. It’s probably a busy day for you, so it might still be morning. Brian Russo Just wanted to understand the increased guidance versus the original guidance. Obviously weather wasn’t the strong weather in the second quarter, it wasn’t included in the original guidance and I’m assuming that the make-whole redemption impact on tax, that was included in the guidance but was the FCA adjustment included in the original guidance. Darrel Anderson Brian, in the original guidance, it was not. We knew that there was potential for a change, but we didn’t know what that change would be or when it would be have implication. So it was not there. Brian Russo Okay. Darrel Anderson We are aware of things going on with it but it wasn’t final. They didn’t become final until second quarter. Brian Russo Right. And so was that just weather and the FCA combined, it seems like your guidance – you are increasing guidance, it should have been greater than what it was. But then I guess it’s probably because you then run into the sharing bands and then kind of caps the upside, is that the way to look at it? Darrel Anderson Yeah. The upper end, remember, our sharing mechanism this year is operating from the first dollar. 25% of the company retained, 75% goes back to customers. So it’s a pretty steep hill. We have to earn to keep one once you hit that threshold. And on the FCA, I do want to correct this. There was an FCA competition included but it was basically the old methodology. We did know if there would be a new methodology and if there was what it would be at that point of time. Brian Russo Right. Okay. And can you maybe talk about the scenarios or the mechanics of the FCA in the upcoming third quarter. Could it potentially have a meaningful impact? Steve Keen At the very highest level, what’s it going to tend to do is take a quarter where you have much higher usage and it’s going to moderate that a bit, pull you back down because it will look at that weather impact and give some of that back to customers. Quarter like the first quarter, if it’s very mild, you are not going to see all of what we used to see in terms of a negative impact. You will get the moderation back as the FCA fills that back in. What it’s doing is looking and saying, did you really get the amount of sales that were expected in order to get you that increment of fixed cost or the partner recovery that isn’t purely an energy sale then you would have otherwise been entitled to and it moderates. You could also look at it and say you got too much. You got a big quarter, lot of sales that you didn’t anticipate, it will take a little bit out. So it is really a moderating factor the way it’s designed right now. Darrel Anderson And Brian, just as a reminder in the classes that it covers which is residential and small commercial, and so variations in those classes will have an impact versus the industrials and the irrigation customer type. They will not have an impact. But as we go into third quarter obviously depending on the makeup of our sales between those classes also have an impact on what FCA might look like. Steve Keen Right. And just to add to Darrel’s comment, those two – the items that were excluded, the industrial and irrigation, they weren’t included in the old FCA either. It’s never been applied to them. That’s not new. Brian Russo Okay, good. And then just to understand the base case and the RFP, it seems like you can bridge the gap between now and when board men [ph] align, it is commercially available with energy efficiency and demand response. There is no need for new capacity or new generation. Steve Keen That’s right, Brian. I mean that’s the way this last round of the IRP set up is. We are sufficient and we don’t have a need really until 2025. Brian, you have to factor in and Darrel mentioned it in his comments that there are assumptions that go into that including the growth assumption. And if those deviate, then the plan will move away from what the IRP is projecting. One thing I know we’ve talked about with you before is our IRP used to include a large load component and add for potential large load, where current IRP does not. And those kind of factors if those things change, you just have to be ready to be nimble around what the IRP says. It’s designed as a document to lay the foundation and as you move past your point of projection into actual, you have to moderate based on what we really experience. So what happens in our service territory over the next couple of years could change what the next IRP might project. Darrel Anderson And Brian, I’m going to add, there is still also the wildcard of 111D. We don’t know – we think that’s coming out soon. We will have to assess that and how that impacts. What’s in our current IRP and so while we don’t have a lot of near term action plans with respect to what’s in the IRP, we will have a chance as we put a new plan together over the next two years to digest all of those variables and see kind of where we land. But as you know, there is a lot of moving pieces right now especially with 111D might not end up, so that could have an impact also. Brian Russo And just it looked like according to the Q, the tax rate was 15% in the second quarter. What’s the assumption built into your EPS guidance? Steve Keen Brian, if you pull the impact of the redemption, it’s isolated in this quarter. So if you go to note 2 and pull that number out, you will see that the effective rate jumps up back above 20% which is kind of where it was last quarter. It’s actually in and around that, so for the full year it’s going to be a number closer to that range. Brian Russo Okay. And then lastly, are there any other tax studies or triggers for gains or losses for the remainder of the year that we should be aware of? Steve Keen Right now, Brian, I don’t believe we have anything. I’m looking at [indiscernible]. We do have our normal – there is an annual process of filing returns, getting our – and we are very current in how we get reviewed by the IRS. There is typically – once you get your returns done, we will look at that and there could be some impact out of that in the third quarter but there is no change in direction or new type of deduction or loss of deduction that we are anticipating right now. It would just be the fact that what actually happen might be slightly different than what got filed in the return as you get a reconcile with the IRS, but that’s the only thing I am aware of, now typically third quarter. Brian Russo Alright. Thank you very much. Steve Keen Thanks, Brian. Operator [Operator Instructions] That concludes the question-and-answer session for today. Mr. Anderson, I’ll turn the conference back to you. Darrel Anderson We know that you all had a fairly busy day. I think there is a lot of you had stacked up calls, so we appreciate you guys taking the time, participating in our call this afternoon. We appreciate your continued interest in our company and look forward to talk to you guys in the future. Thanks a lot. Operator That concludes today’s conference. Thank you for your participation. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!