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Operator Welcome to the Empire District Electric Company Year-End Fourth Quarter and 2015 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Dale Harrington, Secretary and Director of Investor Relations. Please go ahead, sir. Dale Harrington Thank you, Dan and good afternoon, everyone. Welcome to the Empire District Electric Company’s year-end 2015 earnings conference call. Our Press Release announcing fourth quarter and year-end 2015 results was issued yesterday afternoon. The Press Release and a live webcast of this call, including our accompanying slide presentation, are available on our website at www.empiredistrict.com. And a replay of the call will be available on our website through May 5, 2016. Joining me today are Brad Beecher, our President and Chief Executive Officer and Laurie Delano, our Vice President, Finance and Chief Financial Officer. In a few moments, Brad and Laurie will be providing an overview of the fourth quarter and year-end 2015 results and 2016 expectations as well as highlights on some other key matters. But before we begin, let me remind you that our discussion today includes forward-looking statements and the use of non-GAAP financial measures. Slide 2 of our accompanying slide deck and the disclosure in our SEC filings present a list of some of the risks and other factors that could cause further results to differ materially from our expectations. I’ll caution these lists are not exhaustive and the statements made in our discussion today are subject to risks and uncertainties that are difficult to predict. Our SEC filings are available upon request or may be obtained from our web site or from the SEC. I would also direct you to our earnings Press Release for further information on why we believe the presentation of estimated earnings per share impact of individual items and the presentation of gross margin, each of which are non-GAAP presentations, is beneficial for investors in understanding our financial results. With that I’ll now turn the call over to our CEO, Brad Beecher. Brad Beecher Thank you, Dale. Good afternoon, everyone. Thank you for joining us. Today we will discuss our financial results for the fourth quarter and 12 months ended December 31, 2015, period as well as recent activities impacting the Company. As communicated in yesterday’s earnings release, with regard to the strategic alternatives process confirmed in our December 13, 2015, news release we have no update. Moving on to our year-end results, we expected 2015 earnings to be impacted by a regulatory lag associated with the Asbury Air Quality Control System project and they were. Unfortunately, mild weather, particularly in the fourth quarter, also negatively affected earnings. In terms of heating-degree days, December and the fourth quarter 2015 were the mildest in over 30 years. Despite the mild weather, we achieved success in many areas. Our retained earnings reached $100 million for the first time. We have a healthy balance sheet and a sustainable dividend. We continued to improve service reliability for our customers and it was another good year for our employee safety performance. As shown on slide 3, yesterday we reported consolidated earnings for the fourth quarter of 2015 of $9.9 million or $0.23 per share compared to the same quarter in 2014 when earnings were $11.1 million or $0.26 per share. Earnings for the year ended December 31, 2015, were $56.6 million or $1.30 per share, $1.29 on a diluted basis, compared to 12 months ended 2014 earnings of $67.1 million or $1.55 per share. During their meeting yesterday, the Board of Directors declared a quarterly dividend of $0.26 per share, payable March 15, 2016, for shareholders of record as of March 1. This represents a 3.5% annual yield at yesterday’s closing price of $29.45. I’m pleased to report our largest single construction project for the year, the Riverton 12 combined cycle unit, is progressing on schedule. During the fourth quarter, we completed construction work in the equipment integration outage. This past weekend, the project team successfully ran the steam turbine at full operational speed for the first time. I’m happy to report as of this morning, the unit was synchronized to the grid or in other words produced electricity for the first time. Additional operational performance and in-service tests will occur over the next several weeks. We remain on target to complete the project late in the first quarter or early in the second quarter of 2016. Our current projections indicate the combined cycle unit will come in at the lower end of the $165 million to $175 million budget range; however, this is dependent upon the amount of test fuel burned, test energy sales margin and any other unforeseen issues. As we reach the final stages of the Riverton project, the completion of our multi-year compliance plan to reduce fossil fuel emissions is nearing conclusion. We have adequate production capacity and continue to be fully compliant with all current environmental standards. We remain engaged at the local state and federal levels relating to the development of implementation plans for the Environmental Protection Agency’s clean power plan. We believe this regulation will drive significant change in the way electricity is generated in the future, even though there is still uncertainty surrounding the details of implementation plans. You will recall we filed a Missouri rate case last October, primarily to recover costs associated with the Riverton investment. The filing seeks an increase in base rate revenues of approximately $33.4 million or about a 7.3% increase. The procedural schedule provides for a trueup of expenditures incurred through March 31, 2016. This includes rate base items associated with the Riverton project provided it meets in-service criteria by June 1, 2016. The Missouri Commission has scheduled local public hearings for the case in April and evidentiary hearings in Jefferson City beginning May 31. We expect new rates to become effective late in the third quarter. We have also made a corresponding filing in Oklahoma. An administrative rate reciprocity rule now in effect provides for our approved Missouri rates to be applied in our Oklahoma jurisdiction, of course, subject to approval by the Oklahoma Commission. As a reminder, we’re currently recovering our Asbury Air Quality Control system investment through riders in both Kansas and Arkansas. We have a separate rider in place in Kansas to recover increased property taxes. In January, we filed a request to increase the rider by $0.2 million to reflect increased property taxes for the Riverton project. We expect to file a full-year full rate case in Kansas by the end of the third quarter and in Arkansas no later than the end of the year. For 2016, we expect earnings to be within a weather-normalized range of $1.38 to $1.54 per share. This reflects a full year of recovery for expenses related to the Asbury Air Quality Control system and the expectation of a partial year of new rates for the Riverton project. I will now turn the call over to Laurie to provide additional details of our financial and our 2016 earnings guidance. Laurie Delano Thank you, Brad. Good afternoon, everyone. As always, the information I’m about to discuss today will supplement the Press Release we issued late yesterday and as always the earnings-per-share numbers referenced throughout the call are provided on an after-tax estimated basis. I I’ll briefly touch on our 2015 fourth quarter results before I discuss our annual results. Our fourth quarter earnings of $0.23 per share is reflective of much milder winter weather when compared to the previous year’s fourth quarter. In particular, mild December 2015 weather resulted in the lowest number of heating-degree days in 30 years, so the mild quarter weather was the primary driver of a 6.3% decrease in quarter-over-quarter electric sales. Slide 5 shows the quarter-over-quarter changes that impacted earnings per share. Electric segment gross margin or revenues less fuel and purchase power expense, increased $2.3 million, increasing earnings by $0.02 per share. Increased customer rates of about $6.2 million, net of an estimated $1.8 million decrease in Missouri-based fuel recovery, increased revenue $4.4 million quarter-over-quarter. This added an estimated $0.09 per share to margin. This increase was almost entirely offset by the impact of the mild weather and other volumetric factors which decreased revenue by about $8 million, negatively impacting margin by about $0.08 per share when compared to last year. Positive customer growth contributed about $0.01 to earnings per share. Other items including Southwest Power Pool integrated market activity and the timing of our fuel deferrals along with our non-regulated revenues combined to add another estimated $0.02 per share to margin when compared to the fourth quarter of 2014. Mild weather also impacted our gas segment retail sales quarter-over-quarter, driving a decline of just over 27% in total sales volume. This resulted in a decrease in gas segment margin of about $0.02 per share. Consolidated operating and maintenance expenses were relatively flat compared to the 2014 quarter, but added another $0.01 to earnings per share. Higher depreciation and amortization expense reflective of higher levels of plant and service, primarily due to our Asbury project reduced earnings per share around $0.03. Changes in interest costs, AFUDC and other income and deductions reduced earnings per share another $0.03 compared to the prior-year quarter. Turning to our annual results, our net income decreased approximately $10.5 million or around $0.25 per share compared to the 2014 full-year results. Slide 6 provides a breakdown of the various components that resulted in this year-over-year earnings-per-share decrease. Consolidated gross margin increased $6 million over 2014, adding an estimated $0.09 per share. As shown in the callout box on slide 6, we estimate that increased customer rates from our July 2015 Missouri rate case added about $0.15 per share to margin. This is reflective of increased customer rates of about $10.4 million netted with a $3.3 million lowering of our base fuel recovery, ultimately adding an estimated $7.1 million to revenue. We estimate the impacts of weather and other volumetric factors on the electric side of the business reduced revenues an estimated $10.3 million year-over-year. This negatively impacted margin by about $0.10 per share, partially offsetting the increase in earnings driven by the customer rate changes. Increased customer growth added about $0.02 per share to margin and, as in the quarter, Southwest Power Pool integrated market activity and timing differences of our fuel deferrals and other fuel recovery components drove a $0.07 per share margin increase when compared to the 2014 period. A January 2015 FERC refund to four of our wholesale customers reduced margin about $0.02 per share and other miscellaneous and non-regulated revenues combined to increase margin about $0.01 per share. Again, the mild weather impacted our gas segment, driving a margin decrease of about $2.6 million for the year or about $0.04 per share. Increases in our consolidated operating and maintenance expenses decreased earnings about $0.07 per share. The callout box on slide 6 provides a breakdown of this impact. Increased production maintenance expense was the significant driver of the increase in overall O & M expenses. As I mentioned on our previous call, this increase is reflective of our Riverton 12 maintenance contract which was effective January 1, 2015. In addition, it reflects the planned major maintenance outage for our steam turbine at our State Line combined cycle facility. These added expenses reduced earnings about $0.05 per share. Higher production operations expenses, primarily from the increased use of consumables, reduced earnings another $0.03 per share. And as you can see on the slide, increased transmission operations and employee healthcare expenses were offset by decreases in customer and distribution maintenance expenses. Continuing on slide 6, depreciation and amortization expenses decreased earnings per share about $0.11, driven by higher levels of plant and service, again, primarily as a result of our Asbury project. These higher levels of plant and service also drove an increase in property taxes bringing earnings down another $0.04 per share. Increased interest expense reduced earnings per share about $0.05 year-over-year. This reflects our two $60 million debt issuances completed in December 2014 and in August 2015. Reduced AFUDC levels, changes in other income and deductions and the dilutive effect of common stock issuances under our various stock plans combined to round out the remaining $0.07 decrease in earnings per share. As illustrated on slide 7, our actual 2015 results of $1.30 basic earnings per share were, of course, at the bottom end of our guidance range, due primarily to the mild weather during the fourth quarter of 2015. We estimate the impact of the mild fourth quarter weather reduced earnings about $0.07 to $0.09 per share compared to normal. Absent this weather impact, we would have been very close to the midpoint of our 2015 guidance range. As Brad mentioned earlier, we expect our full-year 2016 weather normalized earnings to be within the range of $1.38 to $1.54 per share. On slide 8, we highlight the drivers of our increase in earnings expectations in 2016. As in the past, our estimates are based on normal weather and modest positive sales growth which, as we have previously disclosed, we still expect to be at a level of less than 1% per year over the next several years. We’re also assuming our Missouri rate case filed last October to recover Riverton 12 combined cycle costs will be effective as filed with rates effective in mid-September of this year. Depreciation expense will increase, reflecting our previously disclosed expectation of the Riverton 12 project in-service date in the early to mid-2016 time period at an estimated 30-year live rate. In addition, depreciation will increase for assets placed in service since our last rate case. The impact on depreciation of the Riverton 12 project alone is estimated at approximately $0.05 to $0.06 per share on an annualized earnings-per-share basis. We will also see increases in property tax and interest expense. The higher interest expense, of course, reflects our previously discussed August 2015 debt issuance. It also reflects the redemption of $25 million of our first mortgage bonds which are due in late 2016 and as indicated previously we’re not planning on refinancing this debt when it matures. And last but not least, our AFUDC impact will be lower in 2016 as the Riverton project comes online. Other factors we considered in our range are variations in customer growth and usage as well as variations in operating and maintenance expense. On slide 9, we have updated our trailing 12-month return on equity chart and as you can see at the end of 2015, our return on equity was approximately 7.1%. I’ll also mention that we have not made any changes to the capital expenditure plan we discussed on our last call. Turning to our recent regulatory activity, slide 10 once again summarizes the key aspects of our Missouri rate case filed October 16, 2015. As filed, we’re seeking a $33.4 million increase in base revenues which is about a 7.3% increase. Our requested return on equity is 9.9% and we’re using a capital structure of approximately 51% debt and 49% equity. The filed Missouri rate base is approximately $1.4 billion. The procedural schedule has been set by the commission. The test year ends June 30, 2015, with trueup expenses through March 31, 2016. Rate based items for Riverton 12 through March 31, 2016, may be included if the in-service criteria for the Riverton 12 project has been met by June 1. As Brad noted, we’re making good progress on meeting the in-service criteria. Slide 12 gives you a projected timeline for the case proceedings. Our solar program compliance costs are also included in this Missouri rate filing and Brad will provide an update on this program in his wrapup of our presentation. Similar to our previous rate case to recover our Asbury environmental expenditures and as you can see on the projected timeline, we will experience a period of lag between the in-service date of the Riverton 12 conversion and the time when new customer rates are put in place. Assuming the Missouri Public Service Commission’s 11-month procedural schedule, new rates will become effective in mid-September 2016. I’ll now turn the discussion back over to Brad. Brad Beecher Thank you, Laurie. This past year we implemented a mandated solar rebate program resulting in 767 customer applications as of December 31. The applications represent a total of 11.5 megawatts of customer- owned solar installation which aid in meeting the solar requirements of the Missouri renewable energy standard. Through the end of the year, we have booked $3.5 million in rebates. And as Laurie mentioned, the recovery of the rebates paid through the end of the year is included in our pending Missouri rate case. Any additional costs or rebates incurred through the trueup period will be reflected in the results of our rate case. We’re also very pleased to report that our customers experienced improved service in 2015 as we continued focus on system reliability. We reduced the average number of outage occurrences and the duration of outages affecting customers by 7% and 13% respectively. Continuous improvement in the efficiency of our operations is the goal of another major project undertaken this past year. After months of preparation, a project team is preparing to launch what we term the power delivery construction bundle of our new work management software platform. The new system will aid in the standardization of the design and construction of transmission, distribution and substation equipment. We expect to realize significant cost savings from these efficiency improvements. It is also been a good year on the economic development front. As we have reported earlier, Owens Corning is establishing a new manufacturing operation just west of Joplin. They’re investing $90 million in a mineral wool installation production facility that will employ over 100 workers. We have a substation upgrade underway to accommodate a June startup for the facility and we’re developing plans to construct a new substation to serve the five to six megawatts of load expected when this facility is fully operational. Excitement continues to remain high for the new medical school being established in Joplin which we reported on earlier this year. The new medical school is being developed by Kansas City University of Medicine and Biosciences and will have over 600 students when it reaches full enrollment in 2020. The project is expected to have an annual economic impact for our region of over $100 million. On the legislative front, Senate Bill 1028 was filed in the Missouri Senate this week which states an intent to modernize the regulatory process for electrical corporations in Missouri. It proposes four general provisions. First, consumer protection such as earnings caps, rate caps and performance standards. Second, more timely recovery of the utilities prudently incurred operating costs. Third, policies that encourage investment in Missouri electrical infrastructure. And finally, globally competitive rates for energy- intensive customers. Details are not included in the bill, but we anticipate that additional language will be added as it moves through the legislative process. I will now turn the call back over to the Operator for your questions. Question-and-Answer Session Operator [Operator Instructions]. Our first question comes from Brian Russo of Ladenburg Thalmann. Brian Russo Just to follow up on the Senate Bill 1028. Maybe you could add your view as to what’s different with this bill proposed versus prior bills that didn’t make it out of committee. Brad Beecher I would tell you this time there is a lot more work on consensus on the front end of the process. And, as you can see, if you’ve looked at Senate Bill 1028, it’s one page and really doesn’t have any details. And that’s because all parties are still working very hard on trying to reach consensus before we try to push this forward in a utility committee. Brian Russo And who are the parties? I would imagine there are some large industrial customers? Brad Beecher It’s the same general set of parties that are always participatory in Missouri proceedings. This time it’s a little bit different because Noranda [ph] is helping try to find a good solution for them as well. But it’s – really the Missouri Industrial Energy consumers group is probably the biggest opponents as we sit here today. Brian Russo Okay, got it. And this is just the electric utilities, right, not all utilities? Brad Beecher Senate Bill 1028 is just an electric bill. There are two other bills, there’s a – and I don’t know the numbers off the top of my head, but there’s a gas esters and there’s also a water decoupling bill that are making their own pathways through the Missouri legislature. But all three bills, to my knowledge, are being supported by all the MEDA entities within Missouri – and, MEDA being the Missouri Energy Development Association. Brian Russo And when does the legislature end? Brad Beecher Sometime around the first of May. That’s not exactly right, but sometime in May. Brian Russo And then, you mentioned your CapEx is the same. Does that imply that your prior rate-base slide is also the same? Laurie Delano Yes, it would, Brian. Brian Russo Okay, so there’s no impact from bonus depreciation? Laurie Delano Yes, in the near term we don’t think there’s much impact from bonus depreciation. What it impacts more is the outer years. And so we will have that updated in our analyst presentation when we file it. Brian Russo And then, the $33.4 million revenue request in the Missouri rate case, how much of that is Riverton? Laurie Delano We estimate that the total effect of Riverton is about $27.4 million of that. And that includes return on and of and expenses associated with Riverton. Brian Russo And will there be a net offset from lower fuel? Laurie Delano We’re not expecting one in base rates, no. Brian Russo And then, just referring to the prior rate-base disclosures. Rate base seems to be leveling off in 2018 versus 2017. I’m just curious, how do you achieve earnings growth as rate base levels off? Is it just less regulatory lag or an ROE improvement or is there incremental CapEx that’s being considered? Brad Beecher That’s the question of the day – how do you grow if you don’t have a lot of plant growth? And so we continue to analyze alternatives to grow rate base in those outer years. Brian Russo Okay. And then, just elaborate on what gets you to the high end of the 2016 guidance range. Is it just a constructive outcome in the rate case or what would drive that? Weather? Laurie Delano A couple of things would drive that. Managing our O&M expenses to under budget is one of our considerations. If the growth in our area would be a bit higher than what we have laid into our budget, those are really the two things that we have that would have the most impact. Brad Beecher Brian, you asked if it was weather. And we give weather-normalized guidance and so our entire guidance range covers just normal weather. Operator The next question comes from Paul Ridzon of KeyBanc. Paul Ridzon Brad, you mentioned you filed in Oklahoma. How do you envision that process unfolding to sync the rates up? Brad Beecher Last year, Oklahoma initiated a process whereby if you had a very small number of customers in Oklahoma and you were next to a state with a larger jurisdiction, you could simply file – in this case – Missouri’s rates in Oklahoma. So we’re the first company to go through that. And so Oklahoma is watching what’s going on in our Missouri case, but we would anticipate, at the conclusion of the Missouri case, working with the Oklahoma staff and Oklahoma Commission to implement those same rates in Oklahoma. But it’s the first time, so we’re not exactly sure how that’s going to work. But, so far, discussions with Oklahoma staff have been going very well. Paul Ridzon And when did you expect those new rates to take effect? Brad Beecher Shortly after the Missouri rates take effect. Paul Ridzon We’re just not sure what the process looks like, so whether they get phased in or whether they can come all in at once? Brad Beecher We have to work with the Oklahoma staff to determine how that works. Paul Ridzon Okay. And then, you said today you thought Riverton was going to come in at the low end of the budget? Brad Beecher That’s correct. Paul Ridzon And there’s a nice pick-up in industrial load in the fourth quarter. What was driving that? Laurie Delano Well, we have, if you’ll recall, in the past discussions, we’ve talked about our new dog-food plants that came to Joplin as a result of the tornado. And then, we’ve just seen some other general increases in some of our other customers, but that would be the main driver of that. Paul Ridzon Then, can you quantify what you expect the lag impact to be on earnings-per-share basis with Riverton? Laurie Delano Well, we’ve said that the depreciation alone would be about a $0.05 to $0.06 earnings per share per year on an annualized basis. Obviously, for 2016, you’re not going to have that much impact for that piece of it. Property taxes, we didn’t really quantify specifically what that was. The depreciation is the biggest direct expense lag that we would have. Paul Ridzon The depreciation is the return of capital and then we’re also lagging on return on capital and then operating expenses? Laurie Delano You’d also have the return on capital. Those would be the two major items. Paul Ridzon And, Brad, I appreciate you’re limited in what you can say. Can we expect that the next commentary you make around strategic review will be an up or down? Give us a final answer, there is a transaction or there is no transaction? Brad Beecher I appreciate the fact that you have to ask, but I have no update on that topic today. Operator Our next question comes from Glenn Pruitt of Wells Fargo. Glenn Pruitt I have two questions. One relating to January weather. Can you give me some indication of January weather, where it is, relative to normal and if there’s any impact to 2016 relative to your guidance range? Brad Beecher You live just on the other side of the state from us, so you know this January was kind of normal. We had some cold days; we had some hot days. But in the end, it wasn’t too far off of a normal. Glenn Pruitt Okay, great. I know you’re hesitant to make any additional comments on the strategic alternative discussion, but I was wondering if you could just give some fact space information on what precipitated this discussion? Was it someone approaching you externally or was it initiated internally? Brad Beecher You get the same answer as Paul did – I have no update. Operator Our next question comes from Julian Dumoulin-Smith of UBS. Paul Zimbardo It’s actually Paul Zimbardo in for Julian. Just a quick question, if you could answer whether you believe you’d be subject to regulatory approval in all of the jurisdiction in the event of a change of control? Brad Beecher Yes, we would believe that. Operator Our next question comes from David Frank of Corso Capital Management. David Frank My question was just asked. Thank you very much. Laurie Delano Thank you. Operator Our next question comes from Paul Patterson of Glenrock Associates. Paul Patterson Just on the sales growth, what was weather normalized, I apologize if I missed it, for 2015? Laurie Delano We generally estimate our total normal sales volume to be about 5 million kilowatt hours – I’m sorry, megawatt hours, so we were just under that. Brad Beecher But we continue to believe our weather-normalized sales is right at 5 million megawatt hours, so not a lot of growth in 2015. Paul Patterson Okay. And then, I guess the rest of my questions have been asked. Thanks. Operator This concludes our question and answer session. I would like to turn the conference back over to Management for any closing remarks. Brad Beecher Thank you. Before we close, I remind you that we’re focused on our vision of making lives better every day with reliable energy and service. We’re committed to meeting today’s energy challenges with least-cost resources while ensuring reliable and responsible energy for our customers, an attractive return for our shareholders and a rewarding environment for our employees. Thank you for joining us today and have a great weekend. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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. 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