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Xcel Energy (XEL) Benjamin G. S. Fowke on Q1 2016 Results – Earnings Call Transcript

Xcel Energy, Inc. (NYSE: XEL ) Q1 2016 Earnings Call May 09, 2016 10:00 am ET Executives Paul A. Johnson – Vice President-Investor Relations Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Robert C. Frenzel – Chief Financial Office & Executive Vice President Analysts Ali Agha – SunTrust Robinson Humphrey, Inc. Julien Dumoulin-Smith – UBS Securities LLC Travis Miller – Morningstar, Inc. (Research) Operator Good day, everyone, and welcome to the Xcel Energy First Quarter 2016 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Paul Johnson, Vice President of Investor Relations. Please go ahead, sir. Paul A. Johnson – Vice President-Investor Relations Good morning, and welcome to Xcel Energy’s 2016 first quarter earnings release conference call. Joining me today are Ben Fowke, Chairman, President and Chief Executive Officer; and Bob Frenzel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions. This morning, we will review our 2016 first quarter results and update you on recent business and regulatory developments. You may have noticed that our earnings call is a bit later than normal this quarter. We just implemented a new general ledger system, so we built a little extra time into the schedule. We’re pleased to report that everything went very well with the implementation. Today’s press release refers to both ongoing and GAAP earnings. 2015 first quarter ongoing earnings were $0.46 per share, which excludes a charge of $0.16 per share following the decision by the Minnesota Commission in the Monticello nuclear prudence review. GAAP earnings for the first quarter of 2015 were $0.30 per share. As a reminder, some of the comments during today’s conference call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and our filings with the SEC. I’ll now turn the call over to Ben. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, thank you, Paul, and good morning. Bob will go into more detail later, but in summary, we reported ongoing earnings of $0.47 per share for the quarter, compared to $0.46 per share last year. Overall, it was a solid quarter in which declining O&M expenses offset unfavorable weather and lower than expected sales. While electric sales in the first quarter were below expectations, we expect sales to improve in the second half of the year, and we remain very confident in our ability to deliver earnings within our guidance range. As a result, we are reaffirming our 2016 ongoing earnings guidance of $2.12 to $2.27 per share. As we’ve previously discussed, we are executing on our upside capital investment plan. Later this month, we’ll make a filing with the Colorado Commission to add 600 megawatts of wind generation and associated transmission. This represents a rate base investment of just over $1 billion. In April, the Commission confirmed our interpretation of a Colorado law that allows utilities to own 25% to 50% of incremental renewables without going through a competitive bid process, if the project is developed at a reasonable cost compared to similar renewable sources available in the market. The levelized cost of this wind project including transmission is projected to be below any other existing wind PPAs in the PSCo portfolio. We therefore believe we’ll be able to demonstrate to the Commission and the independent evaluator that this project meets and exceeds the reasonable cost standard and represents tremendous value to our customers. We plan to request a Commission decision by November so that we can capture the full production tax credit benefit for our customers. This capital investment is currently reflected in our upside capital forecast (3:23). If the Commission approves this project, we will move it to our base capital forecast, which will result in rate base growth of 4.5%, a great example of organic and disciplined growth that provides value to shareholders, customers and the economy in our service territory. You should expect us to continue to find investment opportunities of this nature that will drive us to our upside capital goals. Next, I’d like to spend a few minutes recognizing the outstanding efforts of our employees in responding to a major snowstorm in Colorado. In March, Denver and Northern Colorado were hit with a blizzard with 12 to 18 inches of snow and wind gusts over 60 miles per hour that caused approximately 350,000 outages. As a result of proactive planning prior to the storm and the work of over 950 employees and contract crews, we were able to restore service to 90% of our customers within 12 hours, 98% of our customers within 36 hours, and 100% of our customers within 60 hours. This was another example of our world-class storm restoration, and I want to thank all of our employees for their dedication and tremendous efforts to provide excellent customer service and reliability to our customers. Turning to other accomplishments, we recently received several awards that are worth mentioning. In March, the EPA and others recognized Xcel Energy with a 2016 Climate Leadership Award for Excellence in Greenhouse Gas Management. The award acknowledges our commitment and progress in reducing CO2 commissions (sic) emissions. Military Times ranked Xcel Energy as one of the Top Employers of Veterans in 2016. Finally, in April, AWEA named Xcel Energy the number one wind provider of energy for the 12th consecutive year. Finally, we recently announced the hiring of Bob Frenzel as our new Executive Vice President and CFO. Bob brings more than 17 years of experience in energy, banking and consulting in addition to six years of experience as an officer in the U.S. Navy. He most recently served as Senior Vice President and CFO for Luminant. Bob brings a wealth of experience that complements our strategies and our business. He understands our industry and has a proven track record of driving excellent performance and solid growth. Some of the key attributes that Bob brings to the table include strong financial and commercial acumen, excellent strategic vision and execution, an engineering and nuclear background, and an outstanding experience managing cost. He will be a valuable addition to the Xcel Energy team. I think it’s important to recognize that our strategic plans and priorities are not changing. We will continue to focus on organically growing our regulated operations and maintaining the disciplined financial approach you’ve come to expect from us. I also want to recognize the outstanding service and contributions of Teresa Madden, who is retiring after a career spanning 36 years. Teresa played a major role in building our track record of delivering on our value proposition and she leaves a solid platform for continued strong results. We’re very grateful for her many contributions and we wish her much happiness in her retirement. So I’ll now turn the call over to Bob to provide more detail on our financial results and outlook in addition to our regulatory update. Bob? Robert C. Frenzel – Chief Financial Office & Executive Vice President Thanks, Ben, for that introduction. I’m very excited to join Xcel and I’m honored to follow in Teresa’s footsteps. I commit to continuing Xcel’s long tradition of delivering on our financial objectives and growing earnings in a low risk, transparent and predictable manner. Now, let’s get to the details of the quarter. As Ben indicated, we reported ongoing earnings of $0.47 per share for the quarter as compared to $0.46 per share last year. The most significant drivers in the quarter include the following. Improved electric margins increased earnings by $0.06 per share; this was largely due to interim rates in Minnesota and capital rider revenue for recovery of capital investment, partially offset by unfavorable weather. Higher gas margins in our gas segment increased earnings by $0.01 per share, which is primarily due to rate increases from higher rate base, partially offset by unfavorable weather. Lower O&M expenses increased earnings by $0.01 per share, which reflects cost management and some timing-related issues. Partially offsetting these positive drivers was higher depreciation expense, which reduced earnings by $0.06 per share, primarily reflecting depreciation from new capital investment. Turning to our sales results, although the economy in our region remains strong and we continue to add customers, our weather-adjusted electric sales declined by 0.3%. Further adjusting for the impact of an extra day of sales in the quarter due to leap year, our weather-adjusted electric sales actually declined by 1.4%. The decline in sales is largely driven by lower use per customer from energy efficiency, an increase in the number of multi-family units, the impact of distributed solar and the impact on consumption of lower oil and natural gas prices on some of our larger customers. As a result, we have lowered our full-year electric sales growth assumption to 0.5% from 0.5% to 1% range. We continue to expect positive sales growth for the full year in all jurisdictions, due to customer growth as well as planned expansion from some of our larger customers. In addition to lowering our sales assumptions, we’ve also taken actions to lower our full-year O&M expenses. We implemented plans early in the year to offset the impact of the rate reduction in Texas as well as unfavorable weather and lower sales growth. As a result, we now expect to limit our annual O&M expenses to 0% to 1% increase for the full year. As we continue to strive to close our ROE gap, we have been pretty active on the regulatory front. Let me provide you a quick update. There are additional details included in our earnings release. In Wisconsin, we recently filed a case seeking an electric rate increase of $17.4 million and a natural gas increase of $4.8 million. This is a limited scope case, and ROE and capital structure are not expected to be an issue. The decision is expected by December, with final rates effective in January of 2017. We also have pending rate cases in Minnesota and in Texas. Both cases are in the discovery stage, and as a result, there aren’t any material new developments. Finally, we recently filed a settlement in our New Mexico rate case, which was reached between SPS, the staff, and other parties. The black box settlement reflects a non-fuel base rate increase of $23.5 million. The settlement represents a compromise which we think is reasonable. The New Mexico Commission is expected to rule on the settlement later this year and new rates are expected to go into effect in August. As Ben mentioned, we are reaffirming our 2016 ongoing earnings guidance with no changes. However, as I previously mentioned, we have updated several of the key assumptions, including electric sales and O&M expenses as detailed in our earnings release. Also, please note that we’ve reduced our assumption for capital rider recovery to reflect the transfer of some pipeline recovery from the rider to base rates as part of our last Colorado natural gas rate case. The transfer has no material impact on earnings. In summary, it was a good quarter for the company. Continued vigilance on cost management resulted in lower O&M expenses, which offset unfavorable weather and sluggish sales to deliver solid first quarter earnings. We made significant progress to convert some of our upside capital to base capital with a planned filing to own 600 megawatts of wind in Colorado. We anticipate a Commission decision later this year. Finally, we remain on track to deliver ongoing earnings solidly within our 2016 guidance range. This concludes our prepared remarks. Operator, we’ll now take questions. Question-and-Answer Session Operator Thank you. We’ll go first to Ali Agha at SunTrust. Ali Agha – SunTrust Robinson Humphrey, Inc. Thank you, good morning. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Good morning, Ali. Robert C. Frenzel – Chief Financial Office & Executive Vice President Good morning, Ali. Ali Agha – SunTrust Robinson Humphrey, Inc. Good morning, Ben. Good morning. First question, the sluggish sales growth that you alluded to in the first quarter, anything specific – I know it’s early in the year and it’s a small quarter, but that would give you that confidence that we’re still going to end up on the positive for the year given the negative start to the first quarter? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Sure, Ali. It’s really the result of conversations our account managers have had with our large commercial and industrial accounts. So we know we’re going to be seeing more load come on in the second half of the year. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay. Okay, and you highlighted the earned ROE through the LTM ending in March 31. Can you just remind us what kind of regulatory lag that would translate into? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, it’s about 90 basis points of lag. And again, as you know, our goal is to cut the lag by 50 basis points by 2018, and Ali, I think we remain on track with that. If you look at Colorado, I think we are on track. The Minnesota case here should put us on track and we will continue to work diligently at SPS to get that on track including filing of cases that take advantage of new legislation in forward test years in Minnesota – I mean in New Mexico. Ali Agha – SunTrust Robinson Humphrey, Inc. And Ben, this Colorado wind filing, are you anticipating much opposition there or I mean is it pretty much a done deal, all you need to do is show the numbers? Can you just handicap us like how we should think about this filing and the approval? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, I’d never say it’s a done deal. You need Commission approval, but Ali, in tune to the first part of your question, this project has tremendous community support and it’s going to create tremendous value for our customers in fuel savings, even if you look at the lower gas forecast. So we’re excited about it, and the community and our stakeholders are excited about it, so we’re very confident this is going to go through. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay and last question, when should we start to see some of the other growth investments that you’ve highlighted for us start to show up in terms of filings and potential move into base CapEx? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, some of that will come through resource plans. I mean that’s the big part of it – filings for grid monetization opportunities that we might be out there to capture value for our customers. So I mean I think you’ll see it over the next 12 months basically. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay. Thank you. Operator We’ll go next to Michael Weinstein with UBS. Julien Dumoulin-Smith – UBS Securities LLC Hey. It’s actually Julien here. Good morning. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Hi. How are you? Robert C. Frenzel – Chief Financial Office & Executive Vice President Hey, Julien. Julien Dumoulin-Smith – UBS Securities LLC Good. Thank you. Hey. I wanted to follow up – a couple quick questions here. Can you elaborate a little bit on your eligibility to participate more than 25% to 50% in Colorado? What would the requirements there be, and elaborate a little bit more on the requirements of that 25% to 50% and what that threshold would be? And then, perhaps, a separate related question would be, the latest on solar, and specifically community solar in Colorado, and any opportunity to own or rate base those assets. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Okay. Well, let’s start, Julien, with the 25% to 50% standard of the Colorado legislation. The 25% standard is just – is the reasonable cost standard that I mentioned in my prepared remarks. The 50% standard – without going through a competitive bid, you need to show economic value to the community. And I think you asked, can you do more than that? Yeah, you potentially could do more than that. But at this point, we would anticipate you’d have to go through a competitive RFP to do that. And that doesn’t mean we can’t prevail on that. But that’s the law that we were referring to. So we’re pleased with that. Now you asked about community solar gardens. At this point, we don’t have plans to buy any of those projects or provide any of those projects. It doesn’t mean we couldn’t, but – nothing would prevent us, but it’s not something we’ve been actively pursuing at this point. Robert C. Frenzel – Chief Financial Office & Executive Vice President The other point, Ali – or Julien, we will be making a resource plan filing later this spring and we will potentially include some solar in as part of that resource plan, so we’ll go forward with that too. Julien Dumoulin-Smith – UBS Securities LLC Got it. And then just following a little bit on the first quarter results themselves. Obviously, little bit further from plan on the normalized, and it’s always tough to read tea leaves, but what stood out if you were to go back and try to rehash things in terms of factors driving that negative delta? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Julien, you broke up a little bit. Were you asking what drove the negative sales outlook? Julien Dumoulin-Smith – UBS Securities LLC Yeah or was there a specific factor more than others? I know you delineated a few there, but was there one that stood out? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, I mean other than the factors that we mentioned, there’s always the art versus science of capturing weather and the impact of weather, and we did have some significant mild weather in the quarter, so I’m not sure you can ever fully scrub that out. We follow the formulaic approach, which is blessed by our commissions, but there’s always some potential for anomalies. Julien Dumoulin-Smith – UBS Securities LLC Got it. All right. Thank you. Operator We’ll go next to Travis Miller with Morningstar Financial. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Hi, Travis. Travis Miller – Morningstar, Inc. (Research) Good morning, thank you. I guess I’ll continue on this demand question line here. If you think about that flat type demand, even 0.5% demand, if that continues for not just this year, but let’s say the next two years to three years, how does that put you in position for closing that 50 basis point gap? Does that require more rate cases? Does it require you to change the types of requests you’re making, the capital investment? Can you just walk me through kind of how that picture would play out? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, I think it does a number of things, but we’ve been anticipating relatively flat sales in our outlook for quite some time now, Travis, so our ability to close the ROE gap assumes that we are not going to have robust sales to bail us out. So it means you have to manage your O&M carefully, and we are and we will continue to do that, and in fact I think we’re in the early days of cost management. We will make sure our resource plans reflect those kinds of sales growth opportunities, so we don’t overbuild. And of course as you know, we have decoupling mechanisms here on the electric side in Minnesota, which are helpful as well. So there’s a number of things you can do from a regulatory standpoint and from an internal management standpoint, and of course from a resource planning standpoint, and that’s the environment we anticipate being in. Travis Miller – Morningstar, Inc. (Research) Okay. And then just mix between residential and C&I, what’s approximately your margin mix, I guess, is the simplest way to put it? When commercial and industrial is 1.5%, residential is down 1.1%, how does that translate into profitability, if you get kind of where I’m going there? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Let me try to – I ask my team if they can help me with this one. I’ll have a much higher profit margin in the residential, and then when you get to the C&I, it really depends on which customer you’re talking about and which jurisdiction. For example, the largest industrial customer is in SPS. The sales there will have the most minimal impact on margin, if anybody can help further define that for Travis a bit. Robert C. Frenzel – Chief Financial Office & Executive Vice President Yeah, I mean, Travis, if you think about it, the rate per megawatt hour for residential customer is probably going to be somewhere around that $0.11 range and large C&I customer is probably going to be more in that $0.07 range. So it’s pretty different revenue stream. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer And they pay a larger demand charge too, so variable sales tend to be more of the energy – it’s more the energy pass-through than it is the high margin that you’re getting with residential. Travis Miller – Morningstar, Inc. (Research) Yeah. Okay. Great. I appreciate the thoughts. Operator We’re standing by. With no further questions at this time, I would like to turn the conference back to Bob Frenzel for any closing or additional comments. Robert C. Frenzel – Chief Financial Office & Executive Vice President Thank you for participating in our earnings call this morning. I look forward to meeting many of you over the next few weeks at the Deutsche Bank and AGA conferences. If you have any questions in the interim, please contact Paul Johnson with any follow-ups. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Thanks, everyone. Operator This does conclude today’s call. We do thank you for your participation. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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Gas Natural’s (EGAS) CEO Gregory Osborne on Q1 2016 Results – Earnings Call Transcript

Gas Natural, Inc. (NYSEMKT: EGAS ) Q1 2016 Earnings Conference Call May 9, 2016 16:30 ET Executives Deborah Pawlowski – IR Gregory Osborne – President & CEO Jim Sprague – VP & CFO Kevin Degenstein – COO & Chief Compliance Officer Analysts Liam Burke – Wunderlich Securities John Bair – Ascend Wealth Advisors Operator Greetings, and welcome to the Gas Natural Inc. First Quarter 2016 Financial Results Conference Call. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn conference over to Ms. Deborah Pawlowski of Investor Relations. Thank you. You may begin. Deborah Pawlowski Thank you, and good morning everyone. We welcome you to our 2016 first quarter earnings teleconference call. We certainly appreciate your time today and your interest in Gas Natural. Joining me on the call are Gregory Osborne, President and Chief Executive Officer; Vice President and Chief Financial Officer; Kevin Degenstein, our Chief Operating Officer and Chief Compliance Officer as well as Vince Parisi, Vice President and General Counsel. Gregory and Jim are going to review the quarter and year and also give an update on our outlook and strategic progress and then we will open it up for a question-and-answer session. You should have a copy of the financial results were released yesterday after market closed and if not you can access this on our company’s website at www.egas.net. As you’re aware, we may make some forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today’s call. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. I would also like to point out that during today’s call we will discuss some non­-GAAP measures which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared to record of this GAAP. We have provided reconciliations as non-GAAP comparable GAAP measures on the table accompanying today’s earnings release. So with that, let me turn it over to you Gregory to begin. Gregory Osborne Thank you, Deb and good afternoon everyone. I appreciate your time today and your interest in Gas Natural. Our strategic and operational progress was matched by unfavorable record setting warm weather in most of our markets. In fact 71% of our gross margin decline was due to weather. Let me first highlight our strategic and operational progress. As you may know in February we announced a proposal to form a new organizational structure subject to regulatory approval that will line our eight regulated utility operations under one fully owned subsidiary. We believe this structure will create efficiencies, streamline regulatory processes while simplifying our financing arrangements and enhancing financial flexibility. In conjunction with this proposal we have reached agreement with lenders to refinance and consolidate our debt at the parent company level. As previously noted, the new $99 million debt facilities will replace our existing debt agreements and provide more balance to our capital structure placing closer to a 50-50 debt to equity ratio. We also expect the new credit arrangement will provide us with much greater flexibility. Secondly, the implementation of the final phase of our enterprise resource planning, or ERP, system is now complete. This has been a major undertaking and facilitates operational efficiency and scalability. Having divested of our non-core assets in 2015, we are focusing our energies and resources on the remaining four markets. North Carolina and Maine are underserved natural gas markets with higher growth potential and we’re leveraging our larger scale in Montana and Ohio. In the first quarter of 2016 we had an approximately 340 customers. On the regulatory front, stipulation and recommendation between Ohio utilities and Ohio commission staff related to a 2014 investigative audit of our Ohio utilities scheduled for hearing tomorrow, May 10. Our financial results were unfavorably affected by much warmer weather in the first three months of 2016 compared with the prior year although our markets are geographically diverse which typically mitigates the impact of unseasonably warm weather. In this winter, the weather was much warmer across all markets we serve. Looking ahead in all of our jurisdictions, we’ll be evaluating mechanisms that the fix components were service fee structure in order to reduce the impact of unfavorable weather conditions on our financial performance. Of course these mechanisms are subject to regulatory approval. Additionally, first quarter results from our main operations were unfavorably affected by the closure of two industrial facilities and the reduction in rates for third transportation customer. At the beginning of the second quarter we established a new dividend policy that enables greater capital investments for higher returns and positions us for the future dividend increases in line of our earnings growth. The new annual dividend rate is $0.30 per share or equal quarter payments of $7.50 per share. The dividend rate resulted in a pay ratio more in line with our peers. And it also sets our dividend at a sustainable level. The plan to grow dividend as its peer ratio as earnings grow in conjunction with the reduction of dividend from its previous annual rate of $0.54 per share, executive management and the board are taking reductions in the compensation for 2016. I will now turn over to Jim to fully review the financial details. Jim? Jim Sprague Thank you, Gregory, and good afternoon everyone. Thank you for joining us today. Our first quarter 2016 financial results reflect lower full service distribution through point, primarily due to warmer weather in all of our markets as Gregory mentioned. Consolidated revenue was down due to volume declines and lower gas prices. Gross margin was $14.7 million, down 16.5% from the prior year first quarter. The majority or 71% of the decline was due to lower volume attributable to warmer weathers in the prior year. The following factors also contributed to the gross margin decline. $517,000 due to two plant closures and the rate decline for our Kojan [ph] facility; and two, $376,000 from the sale of our Pennsylvania and Kentucky utilities last year. Consolidated operating expenses were $9.2 million, down 6% compared with the prior year quarter primarily as a result of reduced legal cost. Reflecting the decline in gross margin for lower weather dividend through put, consolidated net income for the quarter was $2.7 million or $0.26, down from $4.9 million or $0.46 per share in the 2015 first quarter. Adjusted EBITDA from continuing operations, a non-GAAP number was $7.7 million compared with $10.5 million in the 2015 first quarter. According to the balance sheet, we had $4 million of cash in March 31, 2016, up from $2.7 million at year end 2015. Notes payable and balance withdrawn against our line in credit were $52 million. Our refinance is expected in the latter half of the year after regulatory approval on our reorganization. It will provide us additional capital and greater borrowing capacity. Cash provided by operating activities increased $1.5 million to $9.4 million on lower working capital requirements as a result of warmer weather. Capital expenditures were $2.3 million. Our CapEx for 2016 is currently budgeted at approximately $4.5 million to $5 million. We are evaluating that budget now given the reduction in our dividend, the expected refinancing and the timing of unusual expenses. With that summary, let me turn the call back to Gregory. Gregory? Gregory Osborne Thank you, Jim. Our management team recently met for a strategic summit to advance our strategic growth plans. For the immediate future, our growth plans were focused on expanding our customer base and through put in each of our four utility markets. Across our current market footprint, we have steadily increased our customer base and we believe we can step that up out of the new proposed capital and financial structure currently under consideration by our regulators. Over the next several years, our plan is to drive Gas Natural’s return of equity to the high single digits were trailing by average of approximately 5%. Now let’s go over now for our line of questions. Question-and-Answer Session Operator Thank you. At this time we will be conducting the question-and-answer session. [Operator Instructions] The first question comes from Liam Burke of Wunderlich. Please go ahead. Liam Burke Thank you, good afternoon. I know you said record of favorable weather for the quarter, but could you give us a sense on both Maine and North Carolina properties on how the underlying economic outlook is going, especially in Maine where you saw some plant closures which exacerbated the weather situation? Gregory Osborne Liam, how are you doing today? Liam Burke Good, thanks, Greg. How are you? Gregory Osborne Good. Kevin, do you want to speak to the markets particularly in Maine and also North Carolina? Kevin Degenstein Yes, I’d love to. Good afternoon, and thank you for the question. I’ll start with Maine. It’s probably the best place because it’s where we’ve seen some paper mill loss and a power generating loss. But if you look at the potential going forward we’re quite optimistic with the Maine system. You really need two pieces to come in place, and that’s supply pipelines which our plan to come to that area which will drive down the market cost of natural gas which is higher than the NYMEX index and tends to be probably one of the higher markets in the country, and then the potential is you look further oil has been creeping back up, a little over $40 a barrel. It’s off its all-time low, and as the differential gets greater we tend to get more demand for services. We’re already starting to see an uptick from the bottom of demand for growth opportunities to convert on existing main and to run facilities to new customers. So we’re optimistic that ultimately the potential in Maine is there and that there is growth potential in those communities that we serve and that we can ultimately grow that market as we had planned and ultimately it will be a good utility that becomes a normal diverse customer group of utilities. When you look at North Carolina, we’ve also got opportunity there to continue the filling behind what we run. We’ve got very favorable rates there, propane tends to be higher and we’re in the process of looking at opportunities in the poultry market and looking at possibilities of assistance there based on subsidies and those types of things. So we see both those markets as real growth potential. Recognizing there was somewhat a glitch in Maine just based on pricing, but we see and we believe that will change. Liam Burke Great, thank you, Kevin. And this is just a point of clarification. You did say your CapEx budget is $4.5 million to $5 million this year? Gregory Osborne That is correct for the systems across the four organizations. Liam Burke Okay, great. Thank you very much. Gregory Osborne You’re welcome. Operator The next question comes from John Bair of Ascend Wealth Advisors. Please go ahead. John Bair Thank you. Good afternoon, gentlemen. First question was related to some recent announcements by Kinder Morgan about the failure to get necessary permit approvals to build some pipelines that would be delivering Marseilles [ph] gas to New England. And I’m wondering how that plays into your growth potential in Maine since that gas has got to go through those New York and Massachusetts to get up that way, so can you talk about that a little bit? Gregory Osborne Go ahead, Kevin. Kevin Degenstein Yes, this is Kevin. Ultimately, diversity is to find Maine is critical and we’d love to see that, and obviously we’re disappointed that any pipelines that can’t come from the lower 48 up into that area ’cause it provide this alternate supply. But we do recognize today that the Oagland [ph] market has softened. It’s not as high as it was a couple of years back when we had the extreme cold weather, and those prices are nudging down. As it stands today, if we don’t get pipelines from the lower 48, we are subject to Canadian gas and the Oagland [ph] market prices. But we do enhancing that market’s softening, and it’s not the prices it was a couple of years back. And we see ourselves trending towards being more competitive. However, yes, any pipelines coming from the lower 48 will be very much welcomed by anybody in the Northeast, not just gas. John Bair Politicians does seem to agree with you on that, but they’re denying the permit. So if I’m understanding it correctly then if we can’t get adequate supplies within the U.S. coming up that way you have access to Canadian gas coming across the border then? Is that a fair statement? Gregory Osborne That is correct. We have supplies from Canada. Really what supplies from the South does is give us a price advantage and hopefully lowers the price. But as it stands today, capacity into Canada is not limiting our growth potential. John Bair Okay, very good. Thank you. Operator [Operator Instructions] There are no more questions at this time. I’ll now turn the conference back over to Greg Osborne for any closing remarks. Gregory Osborne Thank you, Ben. In closing I’d like to thank you all for joining us this afternoon for our 2016 First Quarter Earnings Teleconference. I’d also like to thank all of our employees for their dedicated hard work and the commitment to Gas Natural’s long term success. Finally, I’d like to thank our board for their ongoing support and advice. This is an exciting time for Gas Natural as we continue to execute our strategy to establish our business as a benchmark gas utility with greater earnings power. Thank you. Operator This concludes today’s conference call. Thank you for participating. You may now disconnect your lines. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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Crash Imminent Warning Removed By NIRP Crash Indicator

The NIRP Crash Indicator’s signal changed from its pre-crash or crash imminent Orange to its Yellow cautionary reading level on the close of the market on May 9, 2016. The signal had gone from Yellow to Orange prior to the U.S. stock market’s opening on April 28. During the eight day period that the indicator’s reading was Orange ended on May 9, 2016, the S&P 500 went from 2095.15 to 2058.69, a decline of 1.7%. The signal went to Orange from Yellow because the exchange rates of the yen versus both the euro and the US dollar had stabilized during the week ended May 6, 2016. Additionally, both the euro and the dollar appreciated by more than 1.1% versus the yen on Monday May 9, 2016. Please note: For the NIPR Crash indicator to change from the crash imminent Orange or a crash Red reading to Yellow requires that the exchange rate between the yen and dollar be stable for an extended period of time or that the dollar and euro advance significantly versus the yen. An increase in the indicator’s reading from Yellow to Orange requires a steady advance or a significant one day advance for the yen versus the dollar. The NIRP Crash Indicator was developed in February 2016, from my research on the Crash of 2008. My research revealed the metrics that could have been used to predict the Crash of 2008 and its V-shaped reversal off of the March 2009 bottom. See my Seeking Alpha “Japan’s NIRP Increases Probability of Global Market Crash” March 4, 2016 report. The metrics are now powering the indicator. Information about the NIRP Crash Indicator and the daily updating of its four signals ( Red: Full-Crash; Orange: Pre-Crash; Yellow: Caution; Green: All-Clear) is available at www.dynastywealth.com . Since inception the NIRP Crash Indicator’s signals have proven to be very reliable. Throughout the entire month of March, the signal for the NIRP Crash Indicator had remained at the cautionary Yellow and the S&P 500 experienced little volatility as compared to the extremely volatile first two months of 2016. For the month of March, the S&P 500 increased by 4%. The indicator’s reading went from Yellow to Orange after the market’s close on Friday April 1, 2016 . For the following week ended April 8, 2016, the S&P 500 experienced its most volatility since February of 2016 and closed down 1.5% for the week. The signal’s second Orange reading occurred before the market’s April 28, 2016 open. From the Thursday, April 28 open to the Friday, April 29 close, the S&P 500 declined by 1.2%. The S&P 500 (NYSEARCA: SPY ) and the Dow 30 (NYSEARCA: DIA ) ETFs closing at their lowest prices since April 12, 2016 on April 29. See also my SA post “NIRP Crash Indicator’s Sell Signals Very Reliable for April 2016″ May 3, 2016. The primary metric powering the NIRP Crash Indicator are sudden increases in volatility for exchange rates of the yen versus the dollar and other currencies. The significant appreciation in the yen versus the dollar in 2008 accurately predicted the crash of 2008, and the recent declines of the markets to multi-year lows in August of 2015 and February 2016. In my April 11, 2016 ” Yen Volatility Is Leading Indicator For Market Sell-Offs ” SA post and my video interview below entitled “Yen Volatility Causes Market Crashes”, I provide further details on the phenomenon of the yen being a leading indicator of market crashes. The rationale for the for yen volatility or its appreciating significantly versus the dollar being a leading indicator of crashes is because the Japanese yen and the U.S. dollar are the world’s two largest single country reserve currencies. For this reason, the yen is the best default safe-haven currency utilized by investors during any U.S. and global economic and market crises. When crises unfold, historically the U.S. dollar — by far the world’s most liquid and largest safe-haven currency — is susceptible to dramatic declines until the storm has passed. Savvy investors know that the U.S. is, unquestionably, considered the world’s leading economy and markets. They know that upon a crash of the U.S. stock market, the initial knee-jerk reaction would be a simultaneous crash of the U.S. dollar versus the world’s second leading single-nation currency. The yen is currently the default-hedge currency. Even though the euro, arguably, ranks with the U.S. dollar as the world’s top reserve currency, it is not the preferred hedge against the greenback. The euro is shared by 19 of the European Union’s member countries that have wide-ranging social and economic policies, and political persuasions. For this reason, and also because Japan is considered to be one of the most fiscally conservative countries on the planet, the default currency is the yen. The U.S. dollar does not experience extended crashes versus the Swiss franc and the British pound during times of crises because each of the underlying countries has economies much smaller than Japan’s. From my ongoing research coverage of the spreading negative rates and the devastating effect that they could potentially have on the global banking system, the probability is high that the major global stock indices including the S&P 500 will begin a significant decline by 2018 at the latest. My April 11, 2016 article entitled, “Negative Rates Could Send S&P 500 to 925 If Not Eliminated” , provides details about the potential mark down of the S&P 500 likely being in stages. I highly recommend you also watch my 9 minute, 34 second video interview with SCN’s Jane King entitled “Why Negative Rates could send the S&P 500 to 925”. In the video, I explain the math behind why the S&P 500’s declining to below 1000 may be the only remedy to eliminate the negative rates. The video also reveals some of my additional findings on the crash of 2008. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.