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Clean Energy Fuels’ (CLNE) CEO Andrew Littlefair on Q1 2016 Results – Earnings Call Transcript

Clean Energy Fuels Corp. (NASDAQ: CLNE ) Q1 2016 Results Earnings Conference Call May 5, 2016, 04:30 PM ET Executives Tony Kritzer – Director of Investor Communications Andrew Littlefair – President and Chief Executive Officer Robert Vreeland – Chief Financial Officer Analysts Eric Stine – Craig-Hallum Rob Brown – Lake Street Partners Pavel Molchanov – Raymond James Operator Greetings and welcome to the Clean Energy Fuels first quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tony Kritzer, Director of Investor Relations. Please go ahead. Tony Kritzer Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ending March 31, 2016. If you do not receive the release, it is available on the Investor Relations section of the company’s Web site at www.cleanenergyfuels.com where the call is also being webcast. There will be a replay available on the Web site for 30 days. Before we begin, we’d like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as believe, intend, expect, plan, should, anticipate and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Such forward-looking statements are not a guarantee of performance and the company’s actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of the Clean Energy’s Form 10-Q filed May 5, 2016. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company’s non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company’s management does not believe are indicative of the company’s core operating business results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the company’s press release, which has been furnished to the SEC on Form 8-K today. Participating on today’s call from the company is President and Chief Executive Officer, Andrew Littlefair, and Chief Financial Officer, Bob Vreeland. And with that, I will turn the call over to Andrew. Andrew Littlefair Thank you, Tony. Good afternoon, everyone, and thank you for joining us. I’m going to keep my remarks focused on the most important takeaways from what we feel was a strong first quarter. We reported first quarter revenue of $95.8 million, which is a 12% increase over the first quarter of last year. Additionally, we reported $29.8 million of adjusted EBITDA versus negative $5.6 million in Q1 of 2015. The first quarter of 2016 included $6.4 million of VETC and a gain of $15.9 million from buying back some of our converts at a discount. However, even when these real benefits are backed out, our adjusted EBITDA was still positive at $7.5 million, an improvement of over $13 million from the first quarter of 2015. We delivered 77.5 million gallons to our customers. This is a 3% increase over the 75 million gallons we delivered during the first quarter of 2015. On the year-end earnings call, I told you that a primary focus for 2016 would be to conserve cash and de-leverage the balance sheet. To that end, we repaid $60 million of the $145 million convertible notes due in August 2016. In addition, given favorable pricing, we have been opportunistically repurchasing our 2018 convertible debt in the open market through privately negotiated transactions. In the first quarter, we repurchased $32.5 million; and so far in the second quarter, we have repurchased an additional $31.5 million. All told, we have repurchased $64 million of our 2018 convertible notes, leaving $186 million due in October 2018. Our total convertible debt reduction is $124 million. Also to date, in 2016, we have raised $32.4 million of proceeds from public stock sales. At quarter-end, we had $163 million of cash and investments on our balance sheet. Additionally, we reduced our SG&A by 15% year-over-year, while growing our volume and revenues. We are on track with our reduced CapEx budget of $25 million for 2016, which is 50% less than last year, so we are executing on our plan to conserve cash and reduce our debt. From an industry perspective, the pressure for companies to become more sustainable continues to grow. We see natural gas fueling as an economic and realistic solution that a company can utilize to achieve greater sustainability. And we are working with a variety of fleets and shippers like Kroger and Unilever as well as trucking companies, waste companies and municipalities. Fleets continue to look to fuel with natural gas. Here is a noteworthy example. The United States Postal Service is pursuing an initiative to reduce their carbon footprint by 20% by 2020 and have concluded that natural gas is the alternative fuel of choice for their third-party contracted carriers. These carrier carriers are responsible for the majority of all USPS transportation emissions. As part of their contract renewals, the Postal Service is starting to require its outside carriers to use natural gas where it is cost-effective. We are currently working with five other major carriers, who combined have 75 natural gas tractors fueling at several of our highway stations. Additionally, the USPS is considering replacing some of their own Class A tractors and straight trucks with natural gas. Turning now to our renewable fuel business, we continue to see increased interest in demand for our renewable fuel offering. Through our robust network of stations, we have established a pathway to Redeem, our renewable green gas, into vehicles. This is the best way to realize the full value of renewable fuel, which contributed $11 million of revenue in the first quarter. I want to emphasize that our expanding infrastructure has enabled us to benefit from this rapidly growing renewable market and differentiates us from our competitors. Companies like UPS, Ryder, Republic Services and many transit agencies use Redeem and understand its significance. Another important industry innovation, the Cummins Westport low NOx engine has already captured a lot of interest, and these engines are available to order. As a reminder, this low NOx engine reduces NOx 90%. And when combined with our Redeem renewable fuel, it has 90% less carbon. It is cleaner than running an electric vehicle that is plugged into the grid. In the industry, this new introduction is referred to as game changer. Turning now to our station construction, we benefited, during the first quarter, from an increase in full station projects. Currently, we have over 60 projects under contract and in the pipeline. We continue to believe our robust construction pipeline is a solid indicator that our customers continue to make investments in expanding their fleets and remain committed to their sustainability goals. Our virtual pipeline subsidiary, NG Advantage, showed impressive growth, delivering close to 8.6 million gallons to their customers. I’m also pleased to report that we recently signed a follow-on supply deal with Hawaii Gas, which is contracted to purchase over 14 million LNG gallons over the next five years. All told, it was a strong quarter. And I believe it is a testament to our diverse product offering and recurring revenue base. Our largest customers continue to buy new trucks and invest in their natural gas operation and we continue to gain new customers across our markets of transit, refuse and trucking. Our adjusted EBITDA continues to trend positively and we are taking strategic actions to de-leverage our balance sheet and we’re being disciplined with our capital. And with that, I’ll turn the call over to Bob. Robert Vreeland Thank you, Andrew. Good afternoon to everyone. As Andrew mentioned, we have a strong quarter with continued volume growth, a 12% increase in revenue, and adjusted EBITDA of $29.8 million. Starting with volume of 77.5 million gallons, a 3% growth rate over the first quarter of 2015, impacting this growth rate was a decline in RNG volume of 3.5 million gallons. Most of that decline is the result of no longer owning and operating our former Dallas bio-methane plant, which we sold and then operated through mid-April of 2015. Exclusive of those gallons, our volume growth was 8% year-over-year. As Andrew mentioned, NG Advantage had strong year-over-year growth as did our refuse sector, while the other sectors were level with a year ago. LNG volume was down 2.9 million gallons, principally from lower bulk LNG sales. Bulk LNG sales can be uneven throughout the year as LNG demand is influenced by various external factors, such as, more recently, the slowdown in E&P industry, the variable demand of large industrial customers, and weather. We remain active and compete well in the bulk LNG marketplace as evidenced by our new deal with Hawaii Gas. Our Redeem gallons, which are included in our CNG and LNG fuel gallons, increased 70% year-over-year to 15.2 million gallons for the quarter. Our 12% increase in revenue in the first quarter was driven by a better effective price per gallon on higher volume, increased construction project revenue, and the alternative fuel tax credit referred to as VETC. Our Compression sales were down year-over-year as we remain in this challenging global oil environment together with a strong US dollar, although the related gross margin contribution from our Compression business was better than a year ago despite the lower revenue. Our adjusted EBITDA of $29.8 million was driven by a strong gross profit margin, continued reductions in SG&A spending, and a gain from our opportunistic convertible debt repurchase. Our strong gross profit margin was driven substantially by the impacts of selling our Redeem fuel and the associated environmental credits, which helped take our gross profit margin per gasoline gallon equivalent to $0.36 per gallon compared to $0.28 for the first quarter of 2015. Both quarters include the state and federal environmental credits, the LCFS and RINs. The combined credits amounted to $11 million in the first quarter of 2016 compared to $3.2 million in 2015. The economic benefits from the environmental attributes of both natural gas and Redeem remain strong and have more than offset the pressure on retail fuel margins from this low oil and diesel price environment. And finally, on gross margin, we benefited from our increased station construction project sales and the VETC revenue. Our 15% reduction in SG&A to $25.6 million was $4.6 million lower than a year ago and $1 million or 4% lower than the recent fourth quarter. This has been a continuing trend and is the result of the actions we’ve taken given the low oil price environment. And as Andrew mentioned, we recorded a $15.9 million gain on the repurchase of $32.5 million of our 2018 convertible debt. The higher revenues and gross profit margin and lower SG&A, along with the gain on debt repurchase, led to GAAP net income of $2.8 million in the first quarter of 2016 compared to a net loss of $31 million a year ago. And it also lead to an improvement of $35.4 million in adjusted EBITDA from a year ago. Looking forward, we anticipate our Redeem sales to benefit our results, VETC will be recorded each quarter in 2016 relative to volume, and we continue to expect positive quarterly adjusted EBITDA for the balance of 2016. And with that, operator, we’ll open the call to questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] Your first question comes from Eric Stine with Craig-Hallum. Please go ahead. Eric Stine Hi, everyone. Nice quarter. Andrew Littlefair Thank you, Eric. Robert Vreeland Thanks, Eric. Eric Stine I want to start with Redeem, especially given the impact that had in this quarter. How do you think about that long-term – limiting factors to growing volumes there? I know part of it is that, right now, what, California and Oregon that have LCFS, have the standards where you can participate. But do you see other states going down the road of California? And ultimately, where do you think that those Redeem volumes can go? Andrew Littlefair Thanks. I think the short answer, Eric, is the – we’ve had tremendous growth in the Redeem business, and so it won’t be easy to keep up on that growth. But it will continue to develop, and so I think you should count on what we’re doing. So what you saw in the first quarter should continue. I really think that in terms of renewable fuel, we’re really at a beginning point as we’ve got a few different – I know you attended the ACT Conference out here. I really believe that the transportation industry, passenger car, and also those in goods movement, I think this being sustainable fuels and sustainable technologies, I think we’re just at the beginning of what’s going to be a very long move toward cleaner fuels and cleaner innovation, cleaner technology. So I think, over time, you’ll see us continue to grow Redeem. Washington State is now looking at Low Carbon Fuel Standards. We’re selling Redeem in Texas now. The Northeast has kind of come in and out of something that feels a little bit like Low Carbon Fuel Standards. Some states will be more progressive than others. But I think you’re going to continue over time to see more and more regulations that incent and begin to put more values on carbon. And so, I think the good news is for our industry and for our company is that we have this renewable fuel, we have the network to be able to dispense it and the pathway to be able to get it into vehicles. That gives us a huge leg up compared to some of the others in this business. And I think that having the technology, the new Cummins Westport engine which I know was highlighted at this big conference out here just this week, it’s a low NOx engine which is very important for tailpipe emissions, but it also – when it’s combined, as I said in my remarks, with Redeem, it’s really cleaner than the grid which is a big deal. So I think we are well-positioned and I think it will be important, Eric, as we go forward. Eric Stine That’s volumes. But in terms of pricing, what I’m looking at or reading, it seems like the thought is that the pricing, the carbon price per ton, that trend, while there may be some near-term volatility, the trend there is higher too. Andrew Littlefair Yes, Eric. And that’s right. So there’s two – there’s definitely two components to that. There’s the volume and then there’s the pricing of the environmental credits. And that environment has been strong and continues to be strong at the moment. Now, like you said, there’s always the chance of some volatility. But just the way – with the standards that have been set and the obligated parties and all of that, it’s making that kind of a strong market. Eric Stine Yeah, okay. Maybe just thinking about your fleet activity, yesterday, at ACT, clear impression that people thinking that the market is probably flat this year, maybe down a little bit, but just curious, are you seeing any movement in your pipelining other than maybe the timing getting pushed out a little bit? Have any fleets dropped out of that pipeline? What are you seeing right now? Andrew Littlefair Eric, when you look at our customer base, the refuse market continues to be strong. It’ll be as big a year as we’ve had. And we’ve been a host of an industry event, which is called the Garbageman’s Invitational. It’s worth 300 refuse industry executives come here a couple weeks ago. And to a company, they’re all fueling natural gas trucks. And so, that’s a really important segment for us. We see the same thing expanding in transit. Now, when we talk about kind of flat year-over-year, the trucking industry hasn’t been as involved. It doesn’t have quite the maturity in terms of putting vehicles in their fleet like the refuse and transit guys who have been at this now for a decade. So it was a newer segment for us. And I would say, Eric, those that – we’re still seeing new fleets come, often in more of a testing mode with handfuls or dozens of vehicles rather than large purchases. But even in that segment, which I think you’re correct, that it will be similar this year to what it was last year, which I would consider to be important that we’re not backsliding. UPS continues to show the way as other big fleets like them. They haven’t turned back and we haven’t really seen any existing customers that have been in this, especially in the trucking, go back. Those that were on the fence when we entered this downturn in the oil price, they continue to review it. But I would say their attitude – and I’ve even probably met some out there at the conference. The attitude is not opposed to natural gas. In fact, I find it refreshing, in that they’re interested in moving forward. But they’re mindful of the fact that they’ve gotten very low diesel price right now. So I think that when that subsides you’re going to see an uptick in the adoption of natural gas for heavy duty trucking. Eric Stine Right. I guess this is kind of tough to quantify, but I’ll ask anyways. Is there an oil price that you look at and say, okay, at that level, then that’s when trucking really pick back up again? Andrew Littlefair It’s hard to pin me down there. But I know this is that, we’ve had some customers begin to model out oil at $40 a barrel, right? And in some cases, that sort of is difficult to make the natural gas equation work as well as it once did. I think, Eric, when you see $50, $55, $60 a barrel, it really gets – it really begins to move up the price of diesel. Look, diesel price has gone up nationally $0.10 in the last two weeks. It’s gone up every week for the last four weeks. And so, we don’t need to see $100 oil. You need to see the price of – we need to get off of people thinking that we’re going to have $40 oil forever. And I think once they see that there’s volatility, again, in their oil price and it comes back up to $50, $55, $60, I think that’s going to be the signal to have people begin to then – natural gas is still – let’s not forget, that’s our big commodity that we use here and it’s low. It’s very low. And so, the economics begin to sing again when you get back up to that oil price. Eric Stine Okay, thanks a lot. That’s it for me. Andrew Littlefair Yeah. Operator Your next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Andrew Littlefair Hi, Rob. Good afternoon. Rob Brown Congratulations on the EBITDA improvement. I think you said you had 60 stations in your pipeline. Could you give us a sense of – is that all to be delivered this year? And then maybe a sense of the gallon volume that those projects sort of generate ongoing? Andrew Littlefair I don’t know that I have the volume for you, Rob. But most of those stations that we’re talking about in the pipeline will be delivered this year. Rob Brown And then the mix of those, is it refuse mostly or maybe what is the mix there? Andrew Littlefair Big piece of those, refuse that are under contract, some are for our own account, some are for long contracted volumes from anchored tenants for stations that we’re building. Majority of those, though, are for customers – that we’re selling customers. And I hedged just a bit when we use the number over 60 and stuff like that because we get toward the end of the year and some of these – they will be under construction. But you never know if you’re going to get them all – four or five of them, we got it in December and this and that. But it looks to me like the station count should be very similar this year as it was last year, which are some of our biggest years that we’ve had. Rob Brown Okay, great. And then the Hawaiian Gas contract, I assume you’re supplying that out of Boron, but could you give us a sense of, again, what the gallon volume is there and sort of how that works? Andrew Littlefair Well, it starts out slow. And then my friends at Hawaii Gas have been – they’ve been wanting us to be careful about how much we’re saying. But it starts out – as you know, Rob, we’ve sold them some LNG already really more of in a test mode. And we had pieces of this contract done, gosh, maybe as long as a year ago and we were awaiting PUC approval, which came here a little bit ago. They’re now in the process of beginning to go out to bid to receive the containers that will be used for that shipping. Those will be – that’s underway now. Those containers will be delivered throughout this year and I imagine a big slug of those in the back end of this year. So we’ll begin to ramp up. And I think it begins to amount to around 3 million, 3.5 million gallons a year. And there’s a chance we’d do better than that. But it’s a nice additional load. And I hope the experience will be well because even with – you can imagine, all this entailed, we’re still able to bring them a very clean fuel that beats the otherwise imported fuel that they use for the islands. So we’re excited about it. They’re excited about it. And I hope that we can increase that from the number that I gave you in my remarks. Rob Brown Great, thank you. I’ll turn it over. Operator Your next question comes from Pavel Molchanov with Raymond James. Please go ahead. Pavel Molchanov Thanks for taking the question, guys. One of the things that’s really helped you get into positive EBITDA is the reduction in SG&A. So you went from $30 million a year ago to $26 million this quarter. Is there any further room to cut that even more? Robert Vreeland Yes, there is room. And so, we’ve been feeling the effects of actions that we’ve taken as we’ve been going along. So it’s been kind of coming down each quarter. Certainly, on a year-over-year basis, it’s a bigger number. As we go sequentially, it’s coming down. But at some point, it’ll flatten a little bit. Pavel Molchanov Okay, pretty close to where we are right now? Andrew Littlefair I think, Pavel, there’s a little room still left in it. We’re continuing to eye different things to try to bring it down some more. I think there’s still some room left. You’ll see it maybe improve, continue this year. But all the while we’re still growing. And so, there’ll be a limit to how low we can bring it. Robert Vreeland Yeah. So it’s pretty close. Pavel Molchanov Just a housekeeping question, in Q1, you got the VETC catchup cash inflow, how much was that? Robert Vreeland Correct. So we collected all of the VETC that related to 2015. Pavel Molchanov How much is that? Robert Vreeland Yeah, so it was a little bit in excess of about $30 million. Pavel Molchanov $30 million. Thank you, guys. Robert Vreeland Yeah. North of that. Little bit north of that. Andrew Littlefair $32 million. Robert Vreeland Yeah. So it’s a little bit… Andrew Littlefair $32 million, yeah. Robert Vreeland Exactly. Andrew Littlefair Thanks, Pavel. Operator Thank you. There are no further questions at this time. I’d now like to turn the floor back over to Mr. Littlefair for closing remarks. Andrew Littlefair Good. Well, thank you, operator. Thank you, everyone. I want to thank you for listening and – listening in on the call this afternoon. We look forward to updating you on our progress next quarter. Operator That does conclude our conference for today. Thank you for participating. You may now disconnect your lines. 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Otter Tail’s (OTTR) CEO Chuck MacFarlane on Q1 2016 Results – Earnings Call Transcript

Otter Tail Corporation (NASDAQ: OTTR ) Q1 2016 Earnings Conference Call May 3, 2016 11:00 AM ET Executives Loren Hanson – Investor Relations Chuck MacFarlane – President and CEO Kevin Moug – Senior Vice President and Chief Financial Officer Analysts Paul Ridzon – KeyBanc Operator Good morning. Welcome to Otter Tail Corporation’s First Quarter 2016 Earnings Conference Call. This call is being recorded and there will be a question-and-answer session after the prepared remarks. Loren Hanson Good morning, everyone and welcome to our call. My name is Loren Hanson and I manage the Investor Relations area at Otter Tail. Last night, we announced our first quarter 2016 results. Our complete earnings release and slides accompanying this earnings call are available on our website at www.ottertail.com. A replay of the call will be available on our website later today. With me on the call today is Chuck MacFarlane, Otter Tail Corporation’s President and CEO and Kevin Moug, Otter Tail Corporation’s Senior Vice President and Chief Financial Officer, who by the way is also celebrating his birthday today. Before we begin, I’d like to remind you that during the course of this call, we will be making forward-looking statements. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding Otter Tail Corporation’s future financial and operating results, or other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Otter Tail Corp revise our forward-looking statements as a result of new information, future developments, events, or otherwise. For opening remarks, I would now like to turn the call over to Otter Tail Corporation’s President and CEO, Mr. Chuck MacFarlane. Chuck? Chuck MacFarlane Thanks, Loren. Good morning and thanks for joining our call. For the quarter net income was $14.5 million or $0.38 per share. This is in line with our expectations with the exception of warmer than normal weather. The warm weather impacted Otter Tail Powers first-quarter earnings per share by $0.04 compared to the normal. But this was partially mitigated by improved margins in our manufacturing platform. Our business model continues to combine a strong regulated electric utility for the portfolio manufacturing businesses intended to enhance long-term returns. A key component of these two platform strategies are planned to grow the utility business. My remarks today will focus on our strategy to grow rate base and a recently filed rate case. I will also update you on efforts within our manufacturing platform to improve our competitive position. Slide 5, shows our utility rate base expansion, which will drive earnings per share growth for the next five years. We plan to invest 858 million in Otter Tail Power during this time frame. This will result a compound average annual growth rate in rate base of more than 8% from 2016 to 2020 – natural gas generation and renewable generation projects will account for the majority of this rate base expansion. With most eligible for construction cost recovery during construction, this is noted on the bottom of the Slide 6, which shows our regulatory framework. As we’ve discussed on prior calls, we’re investing in two 345-kv transmission line within Otter Tail Power services area that the mid-continent independent system operator has deemed multi-value projects. The cost of these projects will be allocated across all customers in my source 12 state upper mid-west footprint. One line will run from Brookings, South Dakota, 70 miles north to a new substation near Big Stone Plant. It’s the next leg of a recently completed CapX2020 line from the twin cities to Brookings. Slide 7, shows how they are connected. We are 50% owner in the transmission line portion of this project with the Xcel energy, our investment is $97 million, and we’ve all required easements and permits. Xcel started construction late last year and has the line on schedule to be service in 2017. The other line will run from the new substation near the plant, 170 miles North-West to Ellendale, North Dakota and is schedule to be in service in 2019. Otter Tail Power manages the project and is a 50% owner with MDU. Our investment is $153 million, construction will begin this summer, landowners have signed more than 325 of the 350 needed easements, we are finalizing contract with construction vendors and the steel tower vendor has begun producing transmission structures. We also expect to invest in new generation. Utility management has identified options within our service territory, for natural gas plant to replace capacity from the Hoot Lake Coal Plant which we plan to retire in 2021. We have identified three sites each with good access to transmission and natural gas supply. We expect to announce our site selection later this year. Otter Tail Power management is also determining the most beneficial timing and location for additional renewable energy. The company already has 250 MW of cost-effective wind generation that’s 19% of the company’s retail energy sales. Fuel utilities in the nation have a higher percentage of wind energy. We anticipated adding up to 200 MW of additional wind energy before 2021, which would put the company wind resources near 30%. We also planned to add enough solar to power 1.5% of our Minnesota electric retail sales by 2020. This equates to approximately 30 MW of new solar. Otter Tail Power will file an updated resource plan in Minnesota on June 1. Rate base investment is important to the health of our company, also important is the successful outcome to the request Otter Tail Power filed in February with the Minnesota Public Utilities Commission for permission to increase rates by approximately $19.3 million on – 9.8%. This reflects the 10.4% return on equity and a 52.5% equity ratio. The company’s current rates were established in 2011 based on 2009 costs. The portfolio has increased reflecting investments in new environmental technologies, a strength in delivery system, expiration of integrated transmission agreements and overall rising cost. On March 24, the PUC granted a 9.56% rate increase on an interim basis while it considers the overall request. The interim rates went into effect on April 16, and we expect final decision on the rate case in 2017. We intend to keep delivering affordable energy and expect Otter Tail Powers rates to remain among the lowest in the nation and region, even with the increase. I’d like to mention three other projects of Otter Tail Power. One is a10 week schedule maintenance over at Coyote Station. The largest projects are replacing the lower boiler wall, installing a separated over fire air system to reduce NOX emissions and tying into the new mine coal conveyor system. Crews have completed six of the ten weeks, so far everything is on schedule, we’ve encountered no surprises and boiler make availability has been good. This is a $35 million project and Otter Tail shares 35% or $12 million. Second project I want to mention is implementation of a new customer information system. The new system will be able to integrate new rate design, geographic information in average management system. Otter Tail Power has dedicated a strong team to this $15 million project. Attention to detail and tracing requirements, validating business processes, testing deliverables, and managing change will ensure a successful final implementation. The third project I want to mention is relicensing the five small hydroelectric plants we own on the Otter Tail River in near Fergus falls. Hydroelectric power is being part of our energy mix since 1907. It was the origin of Otter Tail Power’s name, these five small plants are combined under one folkway [ph] since it must be relicensed by 2021. We begin the relicensing effort which takes 4 to 5 years. Before turning to our manufacturing platform, I should also mention – with this clean power plant to limit CO2 emissions from existing power plants. When we held our earnings call in February, the U.S. Supreme Court had not yet issued its stay on the rule pending a lower court’s review. We expect the outcome from this review later this year followed by a review at the Supreme Court. You may recall the changes from the draft rule to the final rule were positive for Big Stone Plant in South Dakota, but created new concerns for Coyote Station in North Dakota. We don’t have an immediate compliance concern in Minnesota because we intend to retire Hoot Lake Plant in 2021. We’re continuing to meet with stakeholders in all three states as each state determines whether we’ll continue implementation planning during the stay. Now turning to our manufacturing platform, as reported out in our earnings release net income was up quarter-over-quarter, that said, our manufacturing company is continuing to be impacted by economic challenges in agriculture, energy and recreation vehicle end markets, leaving the lower sales quarter-over-quarter excluding skip sales from BTD Georgia which was acquired in September last year. Our Plastics Companies continued to be impacted by tightening margins on PVC pipe. The presence of these companies continued to guide improvement in each of their businesses as they work through the current economic challenges in the markets they serve. We look for much of our future growth in the manufacturing segment to come from BTD, a metal fabricator. In the past year we expand of the size and capabilities of our Minnesota facilities and made a strategic acquisition of $30 million annual revenue in metal fabricator near Atlanta. BTD has nearly $33 million in spending commitments to expand its facilities in Detroit Lakes and Lakeville, Minnesota. The goal is to increase capabilities, reduce logistics cost, enhance margins. The Detroit Lakes portion of the plan is complete. A new state-of-the-art paint line is operational in the expanded Lakeville facility and previously outsourced work is now painted in-house. BDT will finish consolidating the fabrication facility in Lakeville in May. We are beginning to realize productivity improvements associated with these products. The integration of BTD, Georgia has gone smoothly. We began implementing IT production systems or began integrating IT production systems this summer. At T.O. Plastics, net income was slightly ahead of first quarter in 2015, again on slightly lower revenues. The company continues to focus on horticulture containers, which is its primary market. At the PVC pipe companies Northern Pipe Products and Vinyltech, volume was stronger in the quarter, which offset a reduction in margins. Our resin suppliers announced additional resin pricing increases for the second quarter. Both of these customer companies are efficient, low-cost operators. They are in a good position and are working to ensure the pricing policies appropriate. Now, I’ll turn it over to Kevin for the financial perspective. Kevin Moug Good morning. Please refer to Slide 10, as I discuss our first quarter results. The utility net earnings decreased $640,000 quarter-over-quarter. The decline is due to; one, milder weather in first quarter of 2016 compared to the first quarter last year. Heating degree days were down by 16%. As a result weather negatively impacted earnings per share by approximately $0.04 quarter-over-quarter and compared to normal; two, higher operating and maintaining expenses; and three, higher depreciation expense due to increased rate based investments. These items were offset in part by increased environmental and transmission cost recovery writers and increased sales by client customers. Our manufacturing segment earnings increased $669,000 quarter-over-quarter primarily due to the BTDs performance. Revenues increased quarter-over-quarter for BTD by $3.9 million. The components of this increase are as follows, our Minnesota locations revenues were down $5.6 million due to softening demand from the agriculture, oil and gas and recreational vehicle end markets. Our Illinois location had an increase in revenues of $1.7 million driven by strong demand for wind tower components. And our Georgia facility accounted for $7.8 million in new revenues. We acquired the Georgia facility in September 2015. The higher net income at BTD is due to improved productivity relating to lower cost and expedited trade, manufacturing consumables, cost and quality and lower labor and benefit cost. Our plastic segment revenues increased between the quarters as a result of 18.5% increase in the amount of pounds sold, despite 13.3% decrease in the price per pound sold. Increased sales came primarily from the South-West and Central regions in the United States where construction activities remained strong. And our earnings were basically flat between the quarters due to margin compression that occurred with large drop in PVC pipe selling prices. And our corporate expenses decreased $648,000 quarter-over-quarter primarily due to a reduction in employee headcount and lower benefit cost. We are reaffirming our consolidated earnings per share guidance of $1.50 to $1.65 as shown on Slide 12. Our 2016 guidance is dependent on the business and economic challenges our platforms are facing. As part of this we are updating our segment guidance to reflect current conditions being experienced by our operating companies. We are maintaining our guidance range for the electric segment. We expect 2016 electric segment net income to be slightly higher than 2015 net income based on the reasons listed in the press release. We are increasing the expected earnings per share range for the manufacturing segment by $0.01 on both ends of the range. We are able to do this through aggressive cost management and improved productivity to address challenges for softening end markets at BTD manufacturing. We are reducing the expected range of earnings per share for our plastic segment to $0.28 from $0.26 to $0.30. We are expecting operating margins to tighten for the rest of 2016 as announced resin price increases are not expected to be fully passed on to sales prices due to current competitive market conditions. And we are improving the range of our corporate cost by obtaining a share on both ends of the range due to continued cost reduction efforts. 2016 continues to be dependent on the following items; the constructive outcome of our Minnesota rate case that was filed in February of 2016, BTDs successful growth and sales from its new paint line along with continued focus on operational improvements needed to improve our return on sales as well as full integration of BTD Georgia to better serve our customers in the South-East. These initiatives are especially important in light of the continued market softness and the agriculture, oil, gas and recreational vehicle end markets that BTD serves and continued strong earnings, cash flows and returns on invested capital from our plastic segment. We are pleased with our first quarter results, we also like our position, a strong balance sheet reflective of our current equity to total capitalization ratio of 51%. Investment grade senior unsecured credit ratings, solid regulatory environments and rate based growth in our electric segment. And we are well-positioned for a rebound in end markets served by BTD with the strategic investments we have made over the last two years. This ongoing effort positions us to meet our long-term goal of 4% to 7% compounded growth rate in earnings per share, using 2013’s $1.50 share as adjusted for the base year. We are now ready to take your questions and after the Q&A, Chuck will return with a few closing remarks. Question-and-Answer Session Operator Thank you. [Operator Instructions] Our first question or comment comes from the line of Paul Ridzon with KeyBanc. Your line is now open. Paul Ridzon Good morning. How are you? Chuck MacFarlane Good Paul and you? Paul Ridzon Well, thank you. Just one quick question, you mentioned a ten-week outage, was that cost to be capitalized or will soon that hit O&M? Chuck MacFarlane Paul, that the majority of those are capitalized. I believe the entire project has approximately $2 million in operating costs and the remainder is capital. Paul Ridzon Thank you very much. Operator [Operator Instructions] And at this time I’m showing no further questions or comments. So with that I would like to turn the conference back over to President and CEO, Mr. Chuck MacFarlane for closing remarks. Chuck MacFarlane Thank you. To summarize net earnings increased quarter-over-quarter from continued operations. Our manufacturing segment has improving performance including increased margins associated with improved operations. Otter Tail Power filed the first rate increase request in Minnesota in five years and received approval for interim rates which began in April. And we reaffirmed our 2016 earnings guidance of $1.50 to $1.65 per share. Thank you for joining our call and for your interest in Otter Tail Corporation. We look forward to speaking with you next quarter. Operator Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program, you may now disconnect. Everyone, have a wonderful day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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Duke Energy (DUK) Lynn J. Good on Q1 2016 Results – Earnings Call Transcript

Duke Energy Corp. (NYSE: DUK ) Q1 2016 Earnings Call May 03, 2016 10:00 am ET Executives Bill Currens – Vice President-Investor Relations Lynn J. Good – Chairman, President & Chief Executive Officer Steven K. Young – Chief Financial Officer & Executive Vice President Analysts Greg Gordon – Evercore Group LLC Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Steve Fleishman – Wolfe Research LLC Julien Dumoulin-Smith – UBS Securities LLC Christopher J. Turnure – JPMorgan Securities LLC Michael Lapides – Goldman Sachs & Co. James von Riesemann – Mizuho Securities USA, Inc. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Ali Agha – SunTrust Robinson Humphrey, Inc. Paul Patterson – Glenrock Associates LLC Andrew Levi – Avon Capital/Millennium Partners Operator Good day, and welcome to the Duke Energy First Quarter Earnings Call. Today’s conference is being recorded. And at this time, I would like to turn the conference over to Bill Currens. Please go ahead, sir. Bill Currens – Vice President-Investor Relations Thank you, Yolanda. Good morning everyone, and welcome to Duke Energy’s first quarter 2016 earnings review and business update. Leading our call today is Lynn Good, Chairman, President and CEO along with Steve Young, Executive Vice President and Chief Financial Officer. Today’s discussion will include forward-looking information and the use of non-GAAP financial measures. Slide two presents the Safe Harbor statement, which accompanies our presentation materials. A reconciliation of non-GAAP financial measures can be found on duke-energy.com and in today’s materials. Please note that the appendix to today’s presentation includes supplemental information and additional disclosures. As summarized on slide three, Lynn will cover our first quarter financial and operational highlights and provide an update of our recent strategic and growth initiatives. Then Steve will provide an overview of our first quarter financial results, an, update on economic activities within our service territories and close with our key investor considerations. With that, I’ll turn the call over to Lynn. Lynn J. Good – Chairman, President & Chief Executive Officer Good morning, and thank you for joining us. I’m very pleased with our solid first quarter financial results, our continued focus on operational performance and the progress we’ve made on our strategic portfolio transition and important growth initiatives. I’ll provide an update on our progress on these initiatives in just a moment. First, let me begin with a few financial and operational highlights of the first quarter as summarized on slide four. This morning we announced first quarter 2016 adjusted earnings per share of $1.13. Results for our regulated utilities were modestly below our internal plan as a result of significant storm costs in the Carolinas, milder weather and weaker than expected customer volumes. We continue to see strong customer growth and our 12-month rolling average volumes continue to track consistently with our expectations. Operating results for our international business were in line with our expectations as hydrology began to return to more normal levels in Brazil. We also recognized tax adjustments at international during the quarter, which Steve will review in a movement. As we’ve looked at the balance of the year, we are affirming our full year 2016 guidance range of $4.50 to $4.70 per share. Daily operational excellence continues to underpin our commitment to our customers, communities and investors. That commitment starts with our focus on safety. For 2015, Duke Energy’s employees safety record received the top rank among large utilities as recognize by EEI. Our generation fleet also performed well during the quarter. Our nuclear fleet achieved a 95% capacity factor, building on its record breaking performance in 2015. In Indiana, our Edwardsport IGCC facility continues to improve its operational performance. In February the gasifiers achieved 100% availability, our best month ever. Our growing natural gas fleet is also benefiting customers and the environment, taking advantage of low natural gas prices. In March of this year, our gas-fired plant set a record for monthly natural gas consumption, surpassing the record set last June. This is indicative of the strategic coal-to-gas shift in our generation portfolio, which has enabled us to reduce carbon emissions by 28% since 2005. Our organization responded well to weather challenges in the first quarter. In January, Winter Storm Jonas struck the Carolinas causing approximately 600,000 customer outages. There were also ice and wind storms in February, impacting more than 500,000 customers in the Carolinas. Our teams performed admirably during these events, continuing to provide customers with the level of service they’ve come to expect. Next let me update you on our coal ash basin closure activities in the Carolinas. We continue to make outstanding progress with closure activities underway at six sites. For each of our basins, the North Carolina Department of Environmental Quality is required by statue to recommend risk classifications. Preliminary classifications were released at the end of January followed by a public comment period. We expect DEQ to finalize their classifications shortly. The risk classifications will impact basin closure methods, timing and costs. Based on our comprehensive engineering analysis of our basins, we believe the majority of the remaining unclassified basins meet the requirements for a low classification, allowing 15 years and closure methods which include storing the ash in place. W are committed to safe basin closure in a way that protects our communities and the environment, while minimizing cost to customers. We will keep you informed as the regulatory review process continues to advance. Turning to slide five. I’ll highlight several recent milestones in our important growth initiatives. Our five-year capital plan through 2020 includes a deployment of between $25 billion and $30 billion in growth capital in new natural gas-fired generation, grid investment, commercial and regulated renewables and gas pipeline infrastructure. These investments are directed at improving customer service, modernizing our generation fleet and the electric grid, as well as investing in natural gas infrastructure that is complementary to our system. These investments support our transition toward businesses that provide stable, long-term growth in earnings and the dividend. During the quarter, we received approval from the North Carolina Utilities Commission for our $1 billion Western Carolinas modernization project in Ashville. This allows us to move forward with retiring the Asheville Coal Plant by 2020 and replacing it with two highly efficient natural gas combined cycle units. In South Carolina, construction of our $700 million W.S. Lee Natural Gas Combined Cycle Plant is well underway. The project is on budget and on target for a November 2017 in-service date. We also broke ground on our $1.5 billion natural gas-fired Citrus County Combined Cycle Plant in Florida, staying on track for a 2018 in-service date. We’re building on our success and growing our commercial and regulated renewable assets. In our commercial portfolio, our two 200-megawatt wind projects, Los Vientos IV and Frontier are on target to come online later this year. Since the beginning of the year, we’ve announced the acquisition of nine new solar projects including eight in North Carolina. In our regulated utilities, we’ve announced 100 megawatts of planned solar installations for 2016 in the Carolinas, Florida, and Indiana. That’s already about 75% of what we achieved in 2015, which was a very strong year for solar investment. In fact, Duke Energy progress was ranked third among all utilities in 2015 for bringing new solar capacity online. Additionally, as pictured on this slide, we recently completed an iconic solar farm to serve the power needs of Walt Disney World Resort in Orlando. In the first quarter, we also made good progress in our grid modernization efforts. In March, we announced a settlement agreement with nearly all interveners including key consumer groups on our seven-year Indiana T&D infrastructure investment program. The $1.4 billion plan will provide much needed technology and infrastructure upgrades that will benefit customers, providing improved reliability and safety, fewer and shorter power outages, better information, and overall energy savings. In addition, the settlement allows us to continue evaluating the installation of smart meters in our Indiana service territory, which would be eligible for recovery in a future rate case. The grid modernization hearings with the Indiana Utility Regulatory Commission began yesterday, and we expect a decision around mid-year. Our two commercial natural gas pipeline infrastructure projects, Atlantic Coast Pipeline and Sabal Trail, continue moving forward. Sabal Trail received FERC approval in February, and the pipeline is on target to begin construction in the second quarter and be in operation in 2017. Atlantic Coast Pipeline is also progressing and has adopted several alternate routes, increasing the lengths of the pipeline from about 550 miles to just under 600 miles. The project partners recently submitted updated information related to these alternative routes as well as responses to all of FERC’s outstanding environmental information requests. We’re confident that FERC will soon be able to issue its draft environmental impact statement, the next important project milestone. And in fact, I believe that statement was issued this morning. The project partners have devoted significant time and resources to ensure that the environmental issues have been fully addressed. And as a result, we’ve adjusted our expectation for receipt of the FERC certificate to mid-2017. We are still planning for a late 2018 in-service date for the project. Turning to slide six, I will address recent activities around the strategic transition of our overall business portfolio toward regulated and contracted electric and gas infrastructure businesses. The two strategic transactions highlighted on this slide will complete the realignment of our portfolio to focus entirely on domestic businesses that drive more stable earnings and cash flows. Let’s start with our pending acquisition of Piedmont Natural Gas. In March, we received approval from the Tennessee Regulatory Authority for a change in control upon acquisition by Duke Energy. The final remaining approval is with the North Carolina Utilities Commission, which has scheduled hearing for July 18. We remain confident of closing the transaction before the end of this year. Additionally, at the end of February, we successfully priced a common stock offering to fund the equity portion of the Piedmont acquisition. The $766 million offering was well received by our investors. As a reminder, the shares were offered in a forward structure. This means we will not issue the shares until the forward is settled at the time the Piedmont transaction closes. We are also progressing on the planned exit of our Latin American generation business. We’ve begun initial steps in marketing the assets including signing nondisclosure agreements and providing information to interested parties. This business includes high quality assets, which we believe will attract significant interest for potential buyers. We will keep you updated on this important strategic transition. In conclusion, I’m pleased with our financial results for the quarter and our progress in advancing our growth investments. We’re also maintaining a sharp focus on operational excellence, which includes our commitment to safety and cost efficiency. Our business portfolio transition positions Duke as an industry-leading domestic infrastructure business with stable, transparent earnings and cash flows. We’re looking forward to continuing our progress on this transition throughout 2016. Now, let me turn it over to Steve. Steven K. Young – Chief Financial Officer & Executive Vice President Thanks, Lynn. Before I begin, I’d like to take a moment to thank Bill Currens for his seven years as a leader with the Investor Relations team. Bill’s tireless commitment to delivering accurate, transparent information to our analysts and investors has been outstanding. I will look forward to continuing to work with him in his new role as our Senior Vice President, Chief Accounting Officer & Controller. As many of you know, Mike Callahan is succeeding Bill as Vice President of Investor Relations. Currently Mike serves as Director of Regulated Utilities Forecasting. He has also had extensive experience in treasury, financial planning and analysis, and investor relations. We’re delighted he’s returning to IR to lead the team, where he will continue our efforts to serve our shareholders and investors. Today, I’ll focus on four primary areas. First, I’ll discuss the major drivers of our first quarter results and provide an update to our full-year adjusted EPS guidance range for 2016. I’ll discuss our retail volume trends and the economic conditions within our service territories. I’ll spend a few moments on the continued cost management efforts underway, and then I will close with a review of our key investor considerations. Let’s start with the quarterly results. I will cover the highlights on slide seven. For more detailed information on segment variances versus last year, please refer to the supporting materials that accompany today’s press release. First quarter adjusted diluted earnings were $1.13 per share compared to $1.24 in the first quarter of 2015. The lower results in the current year reflect milder winter weather in 2016 and the absence of Midwest generation results due to the successful sale of the business in April 2015. Additionally in 2016, we incurred significant winter storm costs and somewhat softer retail volumes, which were offset by a tax adjustment at international. On a reported basis, 2016 first quarter earnings per share were $1.01 compared to $1.22 last year. Let me briefly review key quarterly earnings drivers at each of our business segments. On an adjusted basis, regulated utilities results declined by $0.11 per share, principally driven by the milder weather in the Carolinas and Midwest. Higher revenues from pricing and riders in the Carolinas and Ohio were mostly offset by higher depreciation and amortization expense due to additional plant in service, including the acquisition of the NCEMPA assets in July 2015. Additionally, we incurred higher O&M expense during the quarter as a result of winter storm cost in the Carolinas, which were higher than our planning assumptions by $0.05. Offsetting emergent storm expenses were lower outage costs and increased cost efficiencies throughout the organization. As expected, our commercial portfolio declined by $0.11 per share in the first quarter of 2016, primarily due to the absence of the Midwest generation business, which was sold in April of 2015. Our commercial renewables benefited from improved levels of wind production this quarter and growth from new renewable projects. Other was down $0.06 per share, primarily due to prior year tax adjustments and higher interest expense in the quarter. Moving to international operational performance, in particular in Brazil, strengthened during the quarter. Hydrology in Brazil has improved significantly during the recent rainy season. Reservoir levels in southeast Brazil are approximately 60%, compared to around 30% this time last year. This improvement has resulted in increased hydro production throughout Brazil and lower purchased power costs to meet our contractual commitments. We also had $0.11 of favorable tax related items associated with the international segment during the quarter, which represents the impact of several events. You will recall in the fourth quarter of 2014, we declared a $2.7 billion dividend at international in order to efficiently bring funds back to the US. In early 2016, we announced our intent to exit the international business. This decision, combined with the extension of bonus depreciation by Congress in late 2015, allows us to more efficiently utilize foreign tax credits and reduce our US income taxes. As a result of our intent to exit the international business, we will recognize additional US income taxes for international up until the point of sale. Overall, and with our first quarter results, we remain on track to achieve our 2016 guidance range of between $4.50 to $4.70 per share. Moving onto slide eight, I’ll now discuss our retail customer volume trends. On a rolling 12-month basis, weather-normalized retail load growth was 0.7% through the first quarter. For the first quarter, our retail load growth trends were soft. Within the residential sector, we continued to experience strong growth in the number of new customers, approximately 1.3% over the recent 12 months. However, after moderating for most of 2015, residential customer usage trends have declined during the quarter due to the slow economic recovery and adoption of energy efficiency initiatives. Employment and wage growth trends continue to be favorable for the residential sector, along with the improving housing sector. The commercial and industrial classes continue to grow, to show growth of 0.2% and 1.1% respectively over the rolling 12 months. The commercial sector continues to be supported by office vacancy rate declines and job creation remains strong. Offsetting this growth is the governmental sector, as many agencies face tighter budgets, elimination of jobs and adoption of energy efficiency measures. As for the industrial sector, construction, automotives and textiles continue to show strength in the Carolinas and Midwest. Other industrial companies continue to reduce production as they work through unusually high inventory levels accumulated in 2015. However, the softer global economies and the stronger dollar is still impacting companies that compete globally, such as steel and metals. Our 12-month trends continue to track to our planning assumptions, despite a weak first quarter. We will continue to closely monitor customer usage patterns as we progress through the year. Moving to slide nine, as we continue to position our company for a low load growth environment, I’d like to spend just a moment discussing the progress that we made in managing costs across the organization. So far this year, absent the emerging storm costs, O&M is tracking favorable to the prior year, which is consistent with our expectations. We are focused on standardization of our operational processes and systems to manage our business much more efficiently. We also continued to take advantage of the flexibility and cost savings associated with the transition of our generation portfolio from coal to natural gas. Also within our nuclear and fossil generation fleets, we’re making changes in how we plan and execute our plant outages and how we utilize resources across our fleet. Although the Nuclear Promise is an industry-wide approach to controlling costs, activities are already underway within our nuclear fleet to drive out cost and place more discipline on capital allocation. In our transmission and distribution businesses, we continue to pursue technology that not only provides greater reliability and information for our customers, but also helps control work volumes, metering costs and contractor needs. I’ll close with slide 10, which summarizes our key investor considerations. Duke Energy has tremendous scale, offering an attractive investor value proposition, which includes balanced growth in earnings and dividends over time. As Lynn mentioned, we are making excellent progress on the acquisition of Piedmont and the exit of the international business. After the completion of this strategic transition, we will operate a portfolio that provides lower risk and higher quality earnings and cash flows to support growth in both earnings and the dividend. Our strong capital plan includes the transition toward a lower carbon future as we retire coal and build new efficient combined cycle natural gas and renewable resources. We’re excited about the growth opportunities for natural gas infrastructure across our service territories, particularly in the Southeast. Our electric grid investments allow us to deliver higher levels of reliability and offer new innovative products and services to our customers. Our dividend is very important to us. We continue to target annual growth in the dividend consistent with our long-term 4% to 6% earnings growth objective. Strong cash flows from our core businesses support our dividend. We are only one quarter into the year, but remain on track to achieve the $4.50 to $4.70 adjusted earnings per share guidance range for 2016. With that, let’s open the line for your questions. Question-and-Answer Session Bill Currens – Vice President-Investor Relations Okay. Greg, I think we’ve got you first in the queue. We’ll go to Greg Gordon. Greg? Operator, if you can hear us, we’ll go ahead and take Q&A now. Lynn J. Good – Chairman, President & Chief Executive Officer We appear that we having some technical difficulty. So, we’ll wait for a few minutes to see if we can establish the line for questions. Bill Currens – Vice President-Investor Relations If everyone could just bear with us for one second. They had a fire alarm over at the operator’s location. So just bear with us for a second here. Operator We’ll take our first question from Greg Gordon with Evercore ISI. Please go ahead. Greg Gordon – Evercore Group LLC Hey. Thanks. Bill, first of all I wanted to say congratulations. You’ve run a fantastic IR program. You’re leaving it in great hands as well. Bill Currens – Vice President-Investor Relations Great. Thank you for that comment Greg. Lynn J. Good – Chairman, President & Chief Executive Officer Good morning, Greg. Greg Gordon – Evercore Group LLC Yes. Good morning. How are you? So, couple of questions on tax. So you’re ahead of the game on tax and international. I was a little bit distracted when you were going through that part of your script, so can you rehash what’s going on there? And does that effectively put you ahead of target for the year for that segment, since you’re already more than halfway there in the first quarter on your targeted guidance assumptions? Or is the tax drag year-over-year from other parts of the business offsetting it? And finally, you’re at a 26% effective tax rate year-to-date. Are you still expecting it to be 32%, 33% levelized over the course of the year, or is that also trending better? Lynn J. Good – Chairman, President & Chief Executive Officer So Greg, let me start with a little explanation on the tax adjustment, then I’ll turn it to Steve on specifics around effective tax rate. So coming into this year, we had the extension of bonus depreciation and then the planned announcement of the exit of international, put us in a position where we could relook at the tax consequences of the sale of the business and we are going to be in a position to utilize more of our foreign tax credits, which is real economic benefit from the combination of the extension of bonus and the decision to exit. And so that economic benefit is being reflecting in the first quarter. It does put us ahead of our first quarter plan on international as a result of that. But also as we indicated in the script, we will begin recognizing tax expense, because we will no longer be making the assertion that the proceeds do not come onshore and that tax expense will be reflected over the balance of the year. So, ahead of plan through the first quarter, good economic benefit from the tax planning that the team has accomplished here, and I’ll turn it to Steve to talk about effective tax rate. Steven K. Young – Chief Financial Officer & Executive Vice President Yes, we had expected and forecasted an effective tax rate for the year of about 32% to 33%. I think it will be lower than that. You might lower it by 1% on that range, as a result of the tax strategies we put forth related to international. Greg Gordon – Evercore Group LLC Okay. So some portion of that $0.11 will flow back, but there will be a net benefit when we look back at the end of the fiscal year. Is that a fair summary? Lynn J. Good – Chairman, President & Chief Executive Officer That’s correct. Steven K. Young – Chief Financial Officer & Executive Vice President Yes, that’s true. Lynn J. Good – Chairman, President & Chief Executive Officer That’s correct. A modest amount will turn, Greg. Greg Gordon – Evercore Group LLC Okay. I think I understand. Thank you, guys. I’ll cede to the next question. Lynn J. Good – Chairman, President & Chief Executive Officer Okay. Thanks so much. Operator We’ll take our next question from Jonathan Arnold with Deutsche Bank. Please go ahead. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Thank you, guys. That was actually going to be my first question. So, I’ll ask my second one which was on the international sale. Can you give any insight at this stage whether you feel it’s more likely the assets get sold in one block or in packages or some other structure? Lynn J. Good – Chairman, President & Chief Executive Officer Jonathan, we’re pleased with where we are on the process. There’s been good market interest in the assets. We’re still in preliminary phases. So, I can’t speak to whether or not the transaction will be a single transaction or a combination. Our objective will be to optimize the value of the portfolio. And as the year progresses, we’ll keep you informed on timing and expectations. But I would say we’re off to a solid start on the process. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Are you committed to exiting everything, or is it possible that there would be a partial sale if that was the better value outcome? Lynn J. Good – Chairman, President & Chief Executive Officer We’ve made a decision to exit, and are certainly in that process today, Jonathan, and as we move through it we’ll have a better sense of timing and approach. So, I think that’s a question that we’ll be prepared to give more specifics on as the year progresses. But again, we’re off to a good start with the degree of market interest we’re seeing in the assets. Bill Currens – Vice President-Investor Relations Thank you. And thank you to you as well Bill. And good luck. Bill Currens – Vice President-Investor Relations Thank you, Jonathan. Lynn J. Good – Chairman, President & Chief Executive Officer Thanks, Jonathan. Operator We’ll go next to Steve Fleishman with Wolfe Research. Please go ahead. Steve Fleishman – Wolfe Research LLC Yeah. Hi. Good morning. Steven K. Young – Chief Financial Officer & Executive Vice President Good morning. Steve Fleishman – Wolfe Research LLC Thanks for that peaceful moment there earlier. Steven K. Young – Chief Financial Officer & Executive Vice President We didn’t know what was going on for awhile. Lynn J. Good – Chairman, President & Chief Executive Officer I know, when we figured out it was a fire alarm, it has to be one of the first ever. Mr. Currens (32:20) on his final call. Steve Fleishman – Wolfe Research LLC Yes. So, we’ll always remember your final call, Bill. So, just one other clarification on the international. There were Bloomberg Radio story headlines this morning that seemed to imply there was a comment from that saying that the dilution from the sale would be less than you had thought going forward. That’s not what you said though here in this call. So, could you just clarify, did you say something about that or is there anything to add there? Lynn J. Good – Chairman, President & Chief Executive Officer Steve, thanks for that question. So it’s kind of all a part of this discussion around economic value from this tax adjustment. So, we still intend, believe the transaction will be dilutive. We’ll give more visibility on valuation as the process continues. But the fact that we’ve had a tax planning strategy here that has provided an economic value reflected in the first quarter is significant. It’s a combination of bonus and the decision to sell. So that was the point I was making. But we’ll know more on the valuation of the entire transaction as the year progresses. Steve Fleishman – Wolfe Research LLC Okay. But there just to, I’m sorry to clarify again. So you were referring to the benefit that you got in this first quarter. There is not some other tax benefits that occur post sale that we weren’t. Lynn J. Good – Chairman, President & Chief Executive Officer That’s correct. Steve Fleishman – Wolfe Research LLC Okay. Great. And then, just maybe on the clarifying kind of going back to last call. So you had said before, the 4% to 6% growth rate and it’s going to be kind of maybe kind of lower toward the beginning of the period, then rising toward the end of the period. Is that still kind of the way you look at it? Lynn J. Good – Chairman, President & Chief Executive Officer That’s correct, Steve. Steve Fleishman – Wolfe Research LLC Okay. Lynn J. Good – Chairman, President & Chief Executive Officer We don’t expect linear, just given the timing of our capital deployment, the approach we take toward rate cases and resetting our prices. But over the five-year period, we believe we have the capital investments, the growth initiatives that will drive growth within our 4% to 6% targeted range. Steve Fleishman – Wolfe Research LLC Okay. And then lastly, I think Piedmont has a stake in the Constitution Pipeline. I mean, I’m sure that’s not a huge part of the company, but just does that affect much at all your kind of expectations there, the delay? Lynn J. Good – Chairman, President & Chief Executive Officer So, we’ve been following that closely. Steve, and of course are disappointed in the ruling in the State of New York. I think the partners in the projects have been very clear on where they are and the fact that they are reviewing a number of options to go forward. At this point, we’re planning for a delay in the project. But as these options are pursued, some of which could include resubmission or appeal through the courts, we’ll have a better sense of timing and outcome, so more to come on that. Steve Fleishman – Wolfe Research LLC And their stake is like $250 million, is that the right number? Lynn J. Good – Chairman, President & Chief Executive Officer Around $200 million. Around $200 million, Steve. Steve Fleishman – Wolfe Research LLC Okay. Okay. Thank you. Lynn J. Good – Chairman, President & Chief Executive Officer Thank you. Operator We’ll move next to Julien Dumoulin-Smith with UBS. Please go ahead. Julien Dumoulin-Smith – UBS Securities LLC Hey. Good morning. Lynn J. Good – Chairman, President & Chief Executive Officer Good morning, Julien. Steven K. Young – Chief Financial Officer & Executive Vice President Good morning. Julien Dumoulin-Smith – UBS Securities LLC Get it started. So, a few clarifying questions here. Following up on Steve’s last question, how do you think about hitting the bottom end of the range through at least the near-term period? Just to kind of clarify that. Do you expect to be able to hit that 4% in the subsequent years, especially given the year-to-date start and where the sales process is et cetera? Lynn J. Good – Chairman, President & Chief Executive Officer You know, Julien, I think our guidance on that is as it was at the end of the year. We have reaffirmed our range of $4.50 to $4.70 for this year. We’re in the midst of portfolio transition with the sale of international and the acquisition of Piedmont, both of which we expect to make substantial progress on in 2016. That will have bearing on 2017 and forward, so we’ll give you a better sense of 2017 as we get close. We’re confident in the range. We believe it will be nonlinear, as we’ve talked about, but don’t have anything further to say on that at this point. But we’re working hard on all elements of both growth initiatives, capital deployment, pursuing rate cases at the right time, and moving aggressively through the transition in the portfolio. Julien Dumoulin-Smith – UBS Securities LLC And then a quick follow-up on pension accounting here. We’ve seen some companies in the sector pursue some new policies on discount rates. I’d be curious, is that something you all are reviewing? Steven K. Young – Chief Financial Officer & Executive Vice President We keep abreast of the various accounting rules and options available to us and those are things that we look at with a regular basis and we’re keeping an eye on those things. We’re aware of the different methods of selecting discount rates, yield curves, bond methods, spot methods, so we’re keeping an eye on that. Lynn J. Good – Chairman, President & Chief Executive Officer Just no decisions at this point. Julien. Those decisions will be finalized in connection with our year-end planning process. Julien Dumoulin-Smith – UBS Securities LLC So, would that still affect potentially this year? Lynn J. Good – Chairman, President & Chief Executive Officer No, no decisions have been made at this point. Steven K. Young – Chief Financial Officer & Executive Vice President No decisions, and typically a decision like that would impact prospective years. Julien Dumoulin-Smith – UBS Securities LLC Okay. Thank you. And then, more strategic question here. As you think about the gas expansion that you are undertaking by the acquisition of Piedmont, how are you thinking about future expansions or exposures on the gas side of the equation? And specifically here, either more gas utilities or more importantly, I suppose the more direct midstream pipeline exposure. I’d be curious. Lynn J. Good – Chairman, President & Chief Executive Officer Julien, we’re excited about what the potential of the Piedmont acquisition represents for Duke and our focus here in 2016 is on closing the transaction and also progressing Atlantic Coast Pipeline and Sabal Trail. We also see growth within the Piedmont franchise, both with customer additions as well as infrastructure that would support gas generation here in the Carolinas. So, we expect to continue to build on that platform in particular. We’ll look at assets that make sense for Duke, whether they’re midstream or local distribution companies, but don’t have anything more specific to share with you at this point. We’re focused on closing the transaction and integrating it in a successful way. Julien Dumoulin-Smith – UBS Securities LLC Got it. Thank you. Lynn J. Good – Chairman, President & Chief Executive Officer Thank you. Operator We’ll take our next question from Chris Turnure with JPMorgan. Please go ahead. Lynn J. Good – Chairman, President & Chief Executive Officer Good morning, Chris. Christopher J. Turnure – JPMorgan Securities LLC Good morning. I had a more specific question on timing for the international sale. I do respect that it’s still relatively early in the process, but it’s my understanding that you really got the ball rolling back in January, so it’s been a couple months now. At least you do have those I guess confidentiality agreements in place, and you are in discussions. Maybe it would be helpful to hear a best case scenario here knowing what you know, in terms of timing for the ultimate close of the transaction. Lynn J. Good – Chairman, President & Chief Executive Officer Sure. And you know, Chris, the ball was rolling in January and February on planning. The ball began rolling into the market with discussions with counterparties on non-disclosure agreements and interest more in the late March, April timeframe. And so we are two months into that process. The data room, the data book is in the hands of prospective buyers, and over the next couple of months, we’ll be learning more about degree of interest, number of parties that intend to stay in the process, and we’ll have more to update in the second quarter. I just you know, given where we are, I don’t have any more specifics to share with you. Jonathan I believe or someone asked earlier about, is it one transaction or multiple. That of course would impact timing. Our objective is to optimize the value of the portfolio, and we’re going to move through this in a thoughtful way to accomplish exactly that. And we’ll give you more specifics when we are further into the process. Christopher J. Turnure – JPMorgan Securities LLC Great. And then my second question is on Atlantic Coast Pipeline. We did have the delay in the start of construction I guess that you gave some color on in your prepared remarks, but the overall cost and completion date remains unchanged. Is there any more information that you can give us there in terms of the drivers of that delay and start of construction and maybe moving pieces within the lack of change of completion date and lack of change of total costs that might have kind of netted to no effect there, I guess. Lynn J. Good – Chairman, President & Chief Executive Officer Chris, there has been a very active engagement on the part of the partners throughout this process and the delay in receipt of FERC approval has really been the result of pursuing alternate routes and addressing environmental and stakeholder concerns along the way. So the schedule, as originally developed, had contingency timing in it which we’ve continued to work actively with our partners, including you know the way we’re engaging with contractors. And at this point believe that we are on target for a mid-2017 approval from FERC, which should give us an ability to continue to target late 2018 for in-service. So, a lot of good work has been going on to look at a variety of alternatives and to work with the contingency that was within the original project plan. Christopher J. Turnure – JPMorgan Securities LLC Okay, that makes sense. Thank you. Lynn J. Good – Chairman, President & Chief Executive Officer Thank you. Operator Our next question will come from Michael Lapides with Goldman Sachs. Please go ahead. Michael Lapides – Goldman Sachs & Co. Hey, guys. Lynn J. Good – Chairman, President & Chief Executive Officer Hi, Michael. Michael Lapides – Goldman Sachs & Co. Couple of easy ones. Can you all talk about how much utility O&M was down year-over-year in the quarter excluding the impact of storms? Steven K. Young – Chief Financial Officer & Executive Vice President Yes, Michael. The O&M, the non-recoverable types O&M was down $0.04 year-over-year in the quarter. And again, we had about $0.05 of storms delta quarter-over-quarter offsetting that. But we had the $0.04 benefit. Michael Lapides – Goldman Sachs & Co. Okay. And then CapEx in the quarter came in, like if I just annualize that number, that would imply a year-end number several billion below kind of what you highlighted for 2016 levels. Should we just assume CapEx is very back-end loaded in the course of this year or is there a kind of downside potential to that CapEx number? Steven K. Young – Chief Financial Officer & Executive Vice President I think our original capital plans for the years are still intact. I think it’s just a shaping during the year. Lynn J. Good – Chairman, President & Chief Executive Officer And Michael, if you look back even at 2015, we spent about 20% of capital last year. We’re kind of in that range this year in the first quarter, and then it picks up over the course of the year. So the pattern looks similar to what we’ve experienced in previous years. Michael Lapides – Goldman Sachs & Co. Got it. And then finally, can you just remind us what are your thoughts or plans around rate case timing across the various utilities or across your system? Steven K. Young – Chief Financial Officer & Executive Vice President Yes, Michael. As we had mentioned in the February call, we’re looking at the majority of these cases to be back loaded in the five-year timeframe. But that’s always subject to scrutiny of costs and events that are going on at the time. And in fact, we are looking at accelerating a rate case. We may file a notice this year for our filing for Duke Energy Progress South Carolina jurisdiction. So we’re always looking at what’s the appropriate time to go in, what’s our cost structure look like and the investment timing related to that. I’d still say that the majority of the cases are in the back end of the five-year timeframe. But the South Carolina is an example of an opportunity we have that we need to move on perhaps earlier. Michael Lapides – Goldman Sachs & Co. Got it. Yeah. I asked that question only because if I look at the quarterly demand rather than the rolling 12 months, while it’s really strong in the Carolinas, Florida has been a little bit weaker and Indiana and Ohio especially in this quarter were significantly weak on a weather normalized basis. Lynn J. Good – Chairman, President & Chief Executive Officer Michael, the rate case timing in Florida, you may recall, we have the GBRAs in place in connection with the building of the plants and that along with that, has a stay-out through 2018, I believe. And then in Indiana, we’ve been pursuing the T-disc, the grid investment, which will give us an ability to track and that will in hearing hopeful to get approval in Indiana, which will give us an opportunity to reset prices for those investments. And we’ll continue to monitor whether load trends and other things would change our timing in Indiana, but we believe the tracker that we’re pursuing is the highest priority rate activity in that jurisdiction. Michael Lapides – Goldman Sachs & Co. Got it. Thank you, guys. Much appreciated. Lynn J. Good – Chairman, President & Chief Executive Officer Thank you. Steven K. Young – Chief Financial Officer & Executive Vice President Thank you. Operator Our next question will come from Jim von Riesemann with Mizuho. Please go ahead. James von Riesemann – Mizuho Securities USA, Inc. I am all set. Thank you. Lynn J. Good – Chairman, President & Chief Executive Officer Thanks, Jim. Steven K. Young – Chief Financial Officer & Executive Vice President Thanks, Jim. Operator We’ll move to our next caller then, Praful Mehta with Citi. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Hi, guys. Lynn J. Good – Chairman, President & Chief Executive Officer Hello. Steven K. Young – Chief Financial Officer & Executive Vice President Hello. Praful Mehta – Citigroup Global Markets, Inc. (Broker) So, my quick question was, you mentioned on growth on the gas side that you might look at other gas assets. So just to clarify, are you talking about building on your platform for gas with acquisitions or are you looking for organic growth to build on your gas platform? Lynn J. Good – Chairman, President & Chief Executive Officer The first objective is to close the sale, or close the purchase of Piedmont Natural Gas. And we believe that we’ll have organic growth opportunities within that platform not only for new customer additions but expansion of the interstate pipeline system in the Carolinas as we continue our strategic move from coal to gas. And then beyond that, for midstream or LDCs, there was a question earlier that address our interest in that. We will consider those types of additions to the portfolio that make sense, complement what we’re trying to do. But our primary objective is closing the transaction, focusing our attention on integration, focusing our attention on growth organically as I outlined, and then other opportunities we’ll evaluate as they arise. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Got you. Thank you, guys. That’s all I have. Lynn J. Good – Chairman, President & Chief Executive Officer Thank you. Operator Our next question will come from Ali Agha with SunTrust. Please go ahead. Ali Agha – SunTrust Robinson Humphrey, Inc. Thank you. Good morning. Lynn J. Good – Chairman, President & Chief Executive Officer Hello. Good morning. Steven K. Young – Chief Financial Officer & Executive Vice President Hello Ali. Bill Currens – Vice President-Investor Relations Good morning. Ali Agha – SunTrust Robinson Humphrey, Inc. Good morning. Can you remind us for this year, the commercial power earnings that you’ve budgeted, how much of that is essentially coming from recognition of tax credits? Is it almost all of it? Lynn J. Good – Chairman, President & Chief Executive Officer If you look in the slide deck, Ali, on slide 13, it gives you the full year assumption for commercial, and that business is commercial wind and solar, which as you know have tax credits as an important part of their economics. So, that gives you a range or a perspective on the magnitude of that contribution. Ali Agha – SunTrust Robinson Humphrey, Inc. And Lynn, what is the mix between ITC and PTC recognition there? Lynn J. Good – Chairman, President & Chief Executive Officer More heavily PTC, just because of the nature of our portfolio, Ali. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay. And what’s current the average life of contracts on the PTC side? Steven K. Young – Chief Financial Officer & Executive Vice President On the PTC side, we look at PPAs that are in the range of typically 15 to 25 years, in that type of range. Lynn J. Good – Chairman, President & Chief Executive Officer And the PTC benefit, Ali, as you know is a 10-year benefit. Ali Agha – SunTrust Robinson Humphrey, Inc. Yes. Lynn J. Good – Chairman, President & Chief Executive Officer Yeah. Ali Agha – SunTrust Robinson Humphrey, Inc. And you are relatively early in that recognition, right, for most of the portfolio? Lynn J. Good – Chairman, President & Chief Executive Officer You know, certainly, we’ve been in the business, started modestly in 2007 and then you can look at our kind of capital contribution in growth 2012, 2013, 2014, so I would say early in that PTC period generally. Ali Agha – SunTrust Robinson Humphrey, Inc. Yeah. And lastly, Lynn, I know when you provide us full-year guidance, you lay out what you’re expecting adjusted ROEs to be across the portfolio as well. And in general, I mean would you say is there much in terms of, because looking at those numbers, it doesn’t seem to be, but is there much in terms of regulatory lag that you would say exists in your portfolio that perhaps can be captured in future years or are you thinking generally speaking the ROEs will move when you file those rate cases in the back end of the five-year forecast? Lynn J. Good – Chairman, President & Chief Executive Officer Let me make a comment and then Steve can continue. Steve commented a moment ago, Ali, that we see the potential for rate cases in South Carolina in 2016 that’s consistent with capital spending and cost structure and earned returns. And so we do have rate case potential in South Carolina in the very near term. And then later in the five-year period in North Carolina, that will be the result of regulatory lag showing up on capital investment that is occurring now and will occur into the future. I commented on trackers in Indiana and Florida, but at some point, we’ll address updating those rates as well. So, I think regulatory lag for any jurisdiction where we have historic test periods or the need to use base rate increases to achieve prices is going to have some regulatory lag associated with it. And that’s the careful analysis that we closely watch in determining the timing for filing. Steven K. Young – Chief Financial Officer & Executive Vice President And I would add, as we said in February, we had a slide on our five-year growth and we showed the lag was about 3% negative. And that’s an average number over the five-year period. It will vary year per year. And it is as Lynn said related to the jurisdictions where you’ve got gaps between rate cases and you build up investments during those gap periods. So, we’re working on that and planning around those events. Ali Agha – SunTrust Robinson Humphrey, Inc. Thank you. Lynn J. Good – Chairman, President & Chief Executive Officer Thanks, Ali. Operator We’ll take our next question from Paul Patterson with Glenrock Associates. Please go ahead. Paul Patterson – Glenrock Associates LLC Good morning. Lynn J. Good – Chairman, President & Chief Executive Officer Good morning, Paul. Paul Patterson – Glenrock Associates LLC Congratulations again, Bill. Bill Currens – Vice President-Investor Relations Thanks, Paul. Paul Patterson – Glenrock Associates LLC I wanted to just sort of touch base on the storms. Is there a normal number for storm costs that we should be thinking about in this quarter? Steven K. Young – Chief Financial Officer & Executive Vice President It is hard to predict storms obviously. The past three years we’ve seen winter storms that have hit us in the range of $50 million or $60 million a year, but whether that’s normal or not, I would hesitate to say. We try to impute an amount that we think about in our budgeting, but you’ll have during the summer season the potentials for hurricanes in the Southeast and then in the winter storms across our jurisdictions other than Florida, typically there’s the potential. there. Hard to predict, but we’ve seen winter storms the past three years in the neighborhood of $50 million or $60 million. Paul Patterson – Glenrock Associates LLC Okay. On slide 19, it looks like you guys are indicating that for the utilities, only about $0.01 was impacted by unfavorable weather. And I mean, is that solely because of it seems – it’s a little surprisingly, it seems a little low. Does that take into account storm outages that might lower customer usage or, because when we look at slide eight, it looks like non-weather adjusted sales were down 4%, and I think that does not include leap year, correct? Steven K. Young – Chief Financial Officer & Executive Vice President That’s correct. Yes. Let me give a little color on this. But typically, outages from storms do not affect volumes very significantly, as one point to make there, when you’re looking at the whole breadth of things. I would say that the, I always want to say this, when you’re looking at a quarter in particular, short periods of time, you have to be careful about weather normalized data. I think the first quarter of 2016 was mild, particularly March, and I don’t know whether we pulled all of the weather impacts out appropriately in the first quarter of 2016. Correspondingly, the first quarter of 2015 was very, very cold. And I don’t know whether all of the weather was pulled out of that quarter as well. So you’re comparing these two weather normalized periods, and it shows that the weather impact may not have been that significant. I suspect that it may have been more mild than what we showed in the first quarter here, but I don’t try to guess at what that could be. So we just roll with the data. I like to look at the 12 months rolling more critically there. We did as we acknowledged it, it was a bit of a soft quarter, but I think the 12-month rolling numbers are in line with what we’ve been forecasting. And I would want to emphasize that in response to a relatively weak load, we have aggressively pursued our cost structure to offset that. That’s part of our long-term plans. Paul Patterson – Glenrock Associates LLC Okay. Great. Lynn J. Good – Chairman, President & Chief Executive Officer You know Paul, the only thing I would add to it is, we have standard methods of identifying what is weather related and non-weather related. And what Steve is commenting on is those standard methods can be impacted in periods where there is extreme temperature. So extreme cold or extreme warm weather that we experienced in March. So that all leads us to look at longer time periods, so that we don’t have those anomalies that could exist in any quarter. And that is really what has led us to this 12-month rolling average discussion on load because we think that is more indicative of trends we’re experiencing. And as you can imagine, we watch this really closely and manage the business for a low load growth environment. Paul Patterson – Glenrock Associates LLC Excellent. Thanks a lot. Lynn J. Good – Chairman, President & Chief Executive Officer Thank you. Operator And our final question will come from Andy Levi with Avon Capital. Please go ahead. Andrew Levi – Avon Capital/Millennium Partners Hi. Good morning. Lynn J. Good – Chairman, President & Chief Executive Officer Hi, Andy. Steven K. Young – Chief Financial Officer & Executive Vice President Hey, Andy. Andrew Levi – Avon Capital/Millennium Partners How you guys doing? Lynn J. Good – Chairman, President & Chief Executive Officer Good. Steven K. Young – Chief Financial Officer & Executive Vice President Well. Bill Currens – Vice President-Investor Relations Yes, sir. Andrew Levi – Avon Capital/Millennium Partners You’re one of the best ever, even though you never won that award, okay. I just want to say that. I would have given you that award. Bill Currens – Vice President-Investor Relations You just gave it to us, so thank you. Andrew Levi – Avon Capital/Millennium Partners Okay. But maybe next year Michael will win it, so. Actually I think most of my questions have been answered, but just back on the sales. So leap year is what, about 30 basis points on an annual basis, is that? Steven K. Young – Chief Financial Officer & Executive Vice President That’s roughly right, Andy. Andrew Levi – Avon Capital/Millennium Partners Right, so I guess for the quarter, you times up by four or something like that, or is that not the right math? Steven K. Young – Chief Financial Officer & Executive Vice President Yeah I think you could get in the ballpark there, and it’s a little, that’s a rough way to do it. Andrew Levi – Avon Capital/Millennium Partners Right. Steven K. Young – Chief Financial Officer & Executive Vice President But again, I think getting weather normalized data is as much art as science and when you get an extreme period like we had in March and comparing it to an extreme period like a prior year, I think you can get fluctuations that make that comparison a little distorted. We think our customer growth and volumes are in line with our broad prediction levels and we’ll keep an eye on it. Andrew Levi – Avon Capital/Millennium Partners What do you guys think, I mean just in general, because it’s not just you who are seeing like decent customer growth or weak sales trends and it’s not just this quarter. Is it still energy efficiency or what else could it be? Lynn J. Good – Chairman, President & Chief Executive Officer The other thing that we look at, Andy, is multifamily housing versus single family homes. We’re starting to see some positive trends in the Carolinas where there are more single family home construction opportunities. But coming out of the economic downturn, a lot of the growth was in multifamily units, which by their footprint use less energy than a home. So, I think we’re closely monitoring this and the call to the action for us is to ensure that our cost structure and the way we manage our investments and assets are consistent with the trends we’re seeing at the top line. And we believe we have a demonstrated track record in managing our business that way. Andrew Levi – Avon Capital/Millennium Partners Yeah. And then, just in general I guess, international is doing better than expected. Part of that is the tax benefit; part of that is hydro and then I would assume for the second half of the year, you’ll have some tailwind from currency if things kind of stay where they are. So that’s a positive for this year. But it also seems that the utility itself, because of the sales trends and I guess lack of rate increases, seems to be towards the low end of your range at this point. Again, it’s early in the year, but is that a fair statement? Lynn J. Good – Chairman, President & Chief Executive Officer Andy, we’re on target for the range of $450 million to $470 million that we talked to you about. This is the first quarter. I think to give you any more specifics on placement within the guidance range is just premature. As you know, the third quarter is our most significant quarter, and we’re managing the business with identifying rate increase opportunities. Steve talked about South Carolina of course watching costs as part of that. And we’d like to see a longer trend on the sales growth to continue to monitor where that is progressing. So on track to achieve what we set out to achieve at the beginning of the year. Andrew Levi – Avon Capital/Millennium Partners Okay. Thank you very much, and Bill, again congratulations. I think you’ll be a great Controller and keep everyone in the straight and narrow, because I guess that’s what a Controller does, and I’m sure your kids will be happy to spend more time with you than they have for the last few years. Bill Currens – Vice President-Investor Relations All right. Lynn J. Good – Chairman, President & Chief Executive Officer Thanks, Andy. Bill Currens – Vice President-Investor Relations Thank you, Andy. Andrew Levi – Avon Capital/Millennium Partners Yes. Lynn J. Good – Chairman, President & Chief Executive Officer Okay. Operator With that being our last question, I’ll turn the call back to Lynn Good for closing comments. Lynn J. Good – Chairman, President & Chief Executive Officer Okay, Yolanda, thank you. And thanks everyone for hanging in with our fire alarm and our farewell to Bill Currens and welcome to Mike Callahan today. And most of all, thank you for your interest and investment in Duke. We look forward to meeting with many of you over the next several weeks and months and look forward to continue discussions. So, thanks again. Operator That will conclude today’s conference. Thank you all once again 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. 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