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Ameren’s (AEE) CEO Warner Baxter Discusses Q2 2015 Results – Earnings Call Transcript

Ameren Corporation (NYSE: AEE ) Q2 2015 Earnings Conference Call July 31, 2015 10:00 ET Executives Doug Fischer – Senior Director, Investor Relations Warner Baxter – Chairman, President and Chief Executive Officer Marty Lyons – Executive Vice President and Chief Financial Officer Analysts Brian Russo – Ladenburg Thalmann Glenn Pruitt – Wells Fargo David Paz – Wolfe Research Andy Levi – Avon Capital Kevin Fallon – SIR Capital Management Operator Greetings, and welcome to the Ameren Corporation Second Quarter 2015 Earnings 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. I would now like to turn the conference over to your host, Mr. Doug Fischer, Senior Director of Investor Relations for Ameren. Thank you, Mr. Fischer. You may now begin. Doug Fischer Thank you and good morning. I am Doug Fischer, Senior Director of Investor Relations for Ameren Corporation. On the call with me today are Warner Baxter, our Chairman, President and Chief Executive Officer and Marty Lyons, our Executive Vice President and Chief Financial Officer, as well as other members of the Ameren management team. Before we begin, let me cover a few administrative details. This call is being broadcast live on the Internet and the webcast will be available for 1 year on our website at ameren.com. Further, this call contains time-sensitive data that is accurate only as of the date of today’s live broadcast and redistribution of this broadcast is prohibited. To assist with our call this morning, we have posted on our website a presentation that will be referenced by our speakers who may use terms or acronyms which are defined in the presentation. To access this presentation, please look in the Investors section of our website under Webcasts & Presentations and follow the appropriate link. Turning to Page 2 of the presentation, I need to inform you that comments made during this conference call may contain statements that are commonly referred to as forward-looking statements. Such statements include those about future expectations, beliefs, plans, strategies, objectives, events, conditions and financial performance. We caution you that various factors could cause actual results to differ materially from those anticipated. For additional information concerning these factors, please read the forward-looking statements section in the news release we issued today and the forward-looking statements and risk factors sections in our filings with the SEC. Warner will begin this call with comments on second quarter financial results, full year 2015 earnings guidance and a business update. Marty will follow with a more detailed discussion of second quarter results and an update on financial and regulatory matters. We will then open the call for questions. Now, here is Warner who will start on Page 4 of the presentation. Warner Baxter Thanks, Doug. Good morning, everyone and thank you for joining us. Today, we announced second quarter 2015 core earnings of $0.58 per share compared with core earnings of $0.62 per share in last year’s second quarter. Results reported today, we remain on track to deliver solid earnings growth in 2015 and expect that 2015 core earnings to be in the range of $2.45 to $2.65 per share. Key drivers of our second quarter core earnings are listed on this page. I will highlight a couple of them and Marty will discuss each of these drivers later in the call. Consistent with our strategic plan, year-over-year earnings comparisons are benefiting from the significant investments we are making to better serve our customers. These incremental investments continue to be targeted towards our electric transmission and delivery businesses that operate on their formulaic ratemaking. However, in the second quarter of 2015 milder weather grow retail electric sales volumes and earnings lower than second quarter 2014 levels. Further, seasonal rate redesign and variances in the timing of revenue recognition and the formulaic ratemaking in Illinois also negatively affected the comparisons for the quarter and year-to-date periods, but these effects are expected to reverse over the remainder of the year. Our second quarter 2015 core earnings do exclude two unusual items. Those are results from discontinuing operations, primarily reflecting recognition of a tax benefit related to the favorable resolution of an uncertain tax position and a loss provision resulting from discontinuing the pursuit of a construction and operating license for a second nuclear unit in Ameren Missouri’s Callaway Energy Center. This relates to development costs incurred in 2008 and 2009 and is reflected in continuing operations. While we continue to believe nuclear power must be an important clean energy source for our company and country, as evidenced by the 20-year license extension we received this past March for our Callaway Energy Center, this loss provision was driven by recent changes in vendor support for licensing efforts at the Nuclear Regulatory Commission, our assessment of long-term capacity needs, declining cost of alternative generation technologies and the regulatory framework in Missouri among other things. Again, Marty will discuss second quarter earnings in more detail in a few minutes. Turning now to Page 5, here we reiterate our strategic plan. We remain focused on executing this strategy and strongly believe that we will deliver superior long-term value to both our customers and shareholders. I would like to highlight some of our year-to-date efforts and accomplishments towards this end. These include our continued strategic allocation of significant amounts of capital to those businesses whose investments are supported by modern constructive regulatory frameworks, which provides fair, predictable and timely cost recovery and also deliver long-term benefits to our customers. This capital allocation is illustrated in the graphic on the right side of this slide. As you can see, we invested $556 million of our $846 million of capital expenditures for the first half of this year in jurisdictions with these modern constructive regulatory frameworks. This represents about 65% of our first half 2015 total capital expenditures and is an 11% increase over the amount invested in these jurisdictions during the first half of 2014. Approximately $300 million was invested in FERC-regulated electric transmission projects in the first half of this year driven by ongoing construction work on ATXI’s $1.4 billion Illinois Rivers transmission project. Construction is well underway on the first line segment with more than 80% of the 132 tower structures already erected. Completion of this segment is expected next year. Further, foundation construction is underway on two additional line segments, as well as 8 of 10 substations. In addition, I am pleased to note that in May, the Missouri Public Service Commission approved a certificate of convenience and necessity for the 7-mile Missouri portion for the Illinois Rivers project. Turning to ATXI’s Spoon River project in Northwestern Illinois, just last week, Illinois Commerce Commission Administrative Law Judges issued a proposed order recommending approval of a Certificate of Convenience and Necessity and we expect the ICC to issue an order later this year. We also have a pending request at the Missouri Public Service Commission for Certificate of Convenience and Necessity for the Mark Twain project in Northwestern Missouri and expect a decision early next year. All three of these transmission projects, Illinois Rivers, Spoon River and Mark Twain, are MISO-approved, multi-value projects. With regard to the cases pending at the FERC, challenging MISO’s base allowed ROE of 12.38% for transmission services, we and other MISO transmission owners continue to strongly advocate for an ROE level that is fair and that will continue to incentivize the transmission investment needed to ensure a robust grid for our nation. Marty will give you more details in a moment, but I would like to point out that first consideration of these cases is expected to extend into 2016 and 2017. Turning to Page 6 of our presentation, let me provide an update on the execution of our strategic plan at Ameren Illinois. We invested approximately $250 million in Illinois electric and natural gas delivery infrastructure project in the first half of this year, including those that are part of Ameren Illinois’ modernization action plan. This work, enabled by Illinois’ Energy Infrastructure Modernization Act is on track to meet or exceed its investments, the liability, advanced metering and job creation goals. Ameren Illinois customers are experiencing fewer and shorter power outages as a result of electric grid updates. System modernization program began in 2012 the installation of storm-resilient utility poles, automated switches and an upgraded distribution grid have resulted in 238,000 fewer annual electric service interruptions on average. And when customers do experience an outage, Ameren Illinois is restoring power 19% faster on average than in previous years. Further, installations of advanced electric meters were ahead of schedule. In 2015, Ameren Illinois plans to deploy 142,000 electric meters at customer locations in Central Illinois and Southern Illinois. Also more than 330 employees and an additional 1,000 contract workers have been hired to support investments in Ameren Illinois’ electric system and operations. As a result, we are on track to repeat our full time equivalent job creation commitment. All of these benefits are being driven by the forward thinking and constructive regulatory frameworks that support investment in Illinois. Of course, all of this progress requires timely recovery of our investments and constructive regulatory outcomes. We are clearly focused on achieving positive resolutions for our pending Illinois electric delivery from the rate update preceding and natural gas delivery rate case. While Marty will cover these cases in more detail a bit later, I will mention that earlier this week, Ameren Illinois, Illinois Commerce Commission staff, the Citizen’s Utility Board, and the Illinois Industrial Energy Consumers filed a stipulation and agreement on issues in our pending natural gas delivery case. This agreement includes a 9.6% ROE, among other things, which compares to the current allowed ROE of 9.08%. We look forward to the ICC’s decision in this case later this year. In Missouri our efforts are well underway to align operating and capital spending with the electric rate order we received in April as we pursue our goal of earning at/or close to our allowed ROE. We are leveraging ongoing enterprise-wide lean continuous improvement efforts with the natural attrition we are experiencing with our workforce, as well as aggressively pursuing additional cost reductions throughout our supply chain, among other things. And finally, we are continuing our relentless advocacy efforts of Missouri’s policymakers and key stakeholders. Our message is simple and straightforward. Modernizing the state’s regulatory framework is essential to support needed investments to upgrade the stat’s aging electric utility infrastructure in a timely manner and to create jobs. We remain convinced that such monetization will yield benefits similar to those that the State of Illinois is realizing today and is clearly in the best long-term interest of our customers and the economic vitality of Missouri as a whole. Moving to environmental matters, we await the U.S. Environmental Protection Agency’s final Clean Power Plan regulations, which are expected to be issued soon. In recent month, we have engaged an extensive discussions with industry leaders, state and federal regulatory and legislative leaders, including policymakers in the White House and the EPA and other stakeholders. In these discussions, we have aggressively advocated for constructive and responsible improvements to the EPA’s proposed plan. Those improvements include incorporating a better glide path to achieve the final 2030 targets, as well as protections to ensure that our nation’s grid is able to operate in a reliable fashion. And importantly, we are seeking to protect our customers from the significant lines and electricity costs, while at the same time making meaningful progress in reducing greenhouse gas emissions. While I can’t predict what will be in the final rules, I am hopeful that the collective advocacy efforts by Ameren and many other like-minded key stakeholders will result in meaningful improvements in the final Clean Power Plan issued by the EPA. In any event, should the EPA’s final rules require that we alter and accelerate our transition plans, we fully expect that required investments will be treated fairly by our regulators. And let me assure you that we are committed to transitioning to a cleaner, more fueled diverse generation portfolio in a responsible fashion. Recently, we announced plans for new solar facility west of St. Louis. The 13-megawatt Montgomery renewable energy center will be the largest investor-owned solar facility in the State of Missouri and three times the size of our O’Fallon solar facility, which went into service last December. The new facility is expected to be completed by the end of 2016. One last environmental update, last month, the U.S. Supreme Court issued a ruling on the EPA’s Mercury and Air Toxic Standards or MATS rule. In short, the Supreme Court determined that the DC Circuit Court of Appeals aired in deciding that the EPA was not required to consider costs when it developed the MATS rule. However, the Supreme Court decision did not vacate the rule. It remains in effect until a further decision by the DC Circuit Court of Appeals. This MATS rule is still in effect, there has been no change in our compliance strategy and we expect to fully comply with the rule before April of next year. A most significant capital project complied with this rule enhancing the electrostatic precipitators at the Labadie Energy Center which was completed last year. That project was included in our electric rates during our most recent rate case in Missouri. Turning now to Page 7 and our long-term growth outlook, in February of this year, we outlined our plan to grow rate base at a solid 6% compound annual rate over the 2014 through 2019 period. As the graphics on this page illustrates and aligned with our previously mentioned strategic plan, this growth is being driven by the allocation of significant amounts of capital, the FERC-regulated transmission and Illinois electric and natural gas delivery services. Such investments are supported by regulatory frameworks that provide fair, predictable and timely cost recovery and they deliver long-term benefits to our customers. Turning now to Page 8, in addition we have consistently stated that we have a strong pipeline of investments beyond those reflected on the previous page to meet our customers’ future electric and gas energy needs and expectations. To that end, in recent months, we have identified $500 million to $1 billion of potential investments in our Illinois electric and gas businesses, which would be incremental to those incorporated into the 2014 to 2019 rate base growth plan just mentioned. Such investments will be directed to the reconstruction and replacement of aging distribution system infrastructure such as lines, breakers, transformers and underground network facilities to sustain and improve reliability for our customers. Further, these investments include infrastructure capacity upgrades and additions in higher growth areas of the service territory. In Ameren Illinois’ natural gas delivery business, incremental capital would be directed to gas transmission line replacements associated with evolving pipeline safety regulations and aging distribution maintenance and service replacement project. Finally, in Ameren Illinois’ FERC-regulated electric transmission business, identified projects are primarily reliability related, including compliance with new NERC reliability standards and age-based replacements of equipment. We will evaluate these potential increment investments over the balance of this year as part of our now normal annual planning process. As Marty will discuss further, given the strength of our balance sheet and added confidence in the strength of our prospective cash flows, resulting from the recent IRS sign off on our 2013 tax return and associated tax assets, we believe we have the ability to fund the growth plans we announced in February, as well as these potential incremental investments without issuing any additional equity. Turning now to Page 9, in summary we have a strong long-term earnings growth outlook driven by above-peer average rate base growth that is focused on a transparent mix of utility infrastructure investments and jurisdictions with modern constructive rate-making that is formulaic, but uses a future test year. Earlier this year, we reiterated our expectations for compound annual growth of 7% to 10% and earnings per share from continuing operations over the period 2013 to 2018. As we said on our May earnings call, we plan to formally update our long-term earnings growth expectations on an annual basis consistent with our planning cycle. That said, the $500 million to $1 billion of additional investment opportunities I just described and our added conviction concerning the ability to finance our growth without issuing an additional equity, certainly bolstered my confidence in our ability to achieve earnings growth within those expectations. In addition to a superior earnings growth outlook, Ameren offers an attractive annualized dividend of $1.64 per share and a current yield of about 4.1%, which is also superior from our regulated peer average. We remain focused on delivering a solid dividend as we recognize its importance to our shareholders. Of course, any future dividend increases will be based on consideration of, among other things, earnings growth, cash flows and economic and other business conditions. In closing, we believe our shares offer very attractive total return potential for our investors. We are committed to executing the strategy I have discussed with you today and we continue to believe that will deliver superior long-term value to both our customers and our shareholders. Again, thank you for joining us on today’s call. And I will now turn the call over to Marty. Marty Lyons Thank you, Warner. Good morning, everyone. Turning now to Page 11 of our presentation, today we reported second quarter 2015 GAAP earnings of $0.61 per share, which matched second quarter 2014 GAAP earnings. Excluding results from discontinued operations and 2015 loss provision for discontinuing pursuit of a license for a second nuclear unit at Callaway, Ameren recorded second quarter 2015 core earnings of $0.58 per share compared with second quarter 2014 core earnings of $0.62 per share. Second quarter 2015 earnings from discontinued operations were $0.21 per share, primarily resulting from recognition of a tax benefit related to resolution of an uncertain tax position. This tax benefit reflects a settlement reached in June with the IRS, which resolved tax matters associated with the divestiture of our merchant-generation business. As Warner mentioned, with this settlement in hand we have even greater confidence in our ability to fund the growth plan we announced in February, as well as the potential incremental investments discussed without issuing any additional equity, including no issuances of equity through our dividend reinvestment and 401(k) plan. As of June 30, our combined tax benefits from net operating loss carry-forwards, tax credit carry-forwards and expected refunds stand at $643 million, including $454 million at the Ameren parent company level, which are expected to offset income tax liabilities into 2017. In addition to excluding discontinued operations, core earnings also excluded the previously mentioned Callaway license-related provision, which was $0.18 per share. Turning now to page 12, here we highlight factors that drove the $0.04 per share decline in second quarter 2015 core earnings compared to second quarter 2014 core earnings. Key factors included lower retail electric sales volumes, which reduced earnings by $0.04 per share. Milder early summer temperatures accounted for an estimated $0.03 per share of this decline with the balance due to energy efficiency, partially offset by revenue recovery authorized by the Missouri Public Service Commission under the state’s Energy Efficiency Investment Act. And lower Missouri industrial sales stemming primarily from a prolonged reduction in consumption by Ameren Missouri’s largest customer, Noranda Aluminum. Second quarter 2015 temperatures were near normal compared with the warmer than normal early summer temperatures experienced in the prior year period. We estimate that weather normalized kilowatt hour sales to residential and commercial customers in Illinois increased almost one half of 1% and in Missouri, they decreased about three quarters of 1%. As mentioned, in Missouri the negative earnings in fact have declined and electric sales volumes due to our energy efficiency programs is compensated for under provisions of the utilities energy efficiency plan. Excluding the estimated effects of these Missouri programs, we estimate that sales to residential and commercial customers would have also increased by almost one half of 1%. Kilowatt hour sales to Illinois and Missouri’s industrial customers decreased 3% and 4%, respectively reflecting lower sales to a large low-margin Illinois agricultural customer and the aforementioned lower sales to Noranda Aluminum. As noted on this page, the second quarter earnings comparison was also negatively affected by $0.02 per share by a seasonal rate redesigned and the timing of revenue recognition under formula ratemaking each related to Ameren Illinois electric delivery. These same factors reduced first half 2015 earnings by $0.04 per share compared to the prior year period, but we expect they will reverse by year end. In addition, the earnings contribution from electric transmission and delivery investments at ATXI and Ameren Illinois was reduced by $0.02 per share for the quarter and four spread cents per share for the first half because of lower recognized allowed ROEs. Transmission earnings for the year ago quarter reflected the current MISO-based allowed ROE of 12.38%. However, this quarter’s transmission earnings were reduced by a reserve to reflect the potential for a lower allowed ROE as a result of the pending complaint cases at the FERC. We began recognizing such reserves in the fourth quarter of last year. The net ROE recognized in our second quarter 2015 transmission earnings is comparable with the level incorporated into our first quarter 2015 earnings and the 2015 earnings guidance provided in February. Regarding second quarter 2015 Illinois electric delivery earnings, these incorporated an 8.75% allowed ROE compared with 9.4% in the year ago period. This decline was due to a decrease in the assumed annual average 30-year treasury rate from 3.6% to 2.95%. Of course, full year 2015 Illinois electric delivery earnings will incorporate the actual 2015 average 30-year treasury rate. Finally, depreciation and amortization expenses increased in jurisdictions not subject to formulaic ratemaking, negatively affecting earnings by approximately $0.01 per share. Moving to factors that had a favorable fact on the second quarter earnings comparison, increased investments in electric transmission and delivery infrastructure under formula ratemaking increased earnings by $0.04 per share compared with the year ago quarter and earnings benefited by $0.02 per share from a lower effective income tax rate, both of which I will discuss further on the next page. Turning then to Page 13, first I would like to remind you that we expect our 2015 core diluted earnings to be in a range of $2.45 to $2.65 per share. On this page, we list select items for you to consider as you update your earnings outlook for the remainder of the year. These include the effect on earnings that a return to normal temperatures would have on this year’s remaining quarters compared with those of last year. In particular, a return to normal weather in the third quarter would boost earnings by an estimated $0.09 per share compared to the mild year-ago quarter. Over the balance of this year, we also expect increased earnings from our FERC-regulated electric transmission and Illinois electric delivery services as we continue to make significant infrastructure investments under formula ratemaking. As I mentioned, we have been recording a reserve to reflect the potential for a lower FERC-allowed ROE since the fourth quarter of last year. The cumulative reserve recorded in that quarter was retroactive to November 12, 2013, the date the first MISO ROE complaint case was filed. The absence in the fourth quarter of this year of the prior period portion of the fourth quarter 2014 reserve is expected to benefit this year’s fourth quarter earnings comparison. Moving to a couple of factors that are anticipated to negatively affect the second half 2015 earnings comparison depreciation and amortization expenses are expected to increase for our businesses not operating under formula rates, and capitalized financing costs are expected to decline, reflecting a year-over-year decline in ongoing Ameren-Missouri capital projects. In 2014, a significant number of Ameren Missouri capital projects were in process and ultimately placed into service late in the year. Back on the positive side, earnings for the balance of the year are expected to benefit from a lower effective income tax rate. Our forecasted 2015 effective income tax rate is approximately 38%, a decrease from the 2014 effective rate which was approximately 39%. In addition, I want to remind you of additional factors that will affect the fourth quarter comparison. The absence of the Callaway Energy Center refueling and maintenance outage is expected to boost fourth quarter 2015 earnings by approximately $0.08 per share compared with the year-ago quarter. The next Callaway refueling is scheduled for the spring of 2016. Further, this year’s fourth quarter will reflect the absence of a 2014 benefit resulting from a regulatory decision authorizing Ameren Illinois to recover previously disallowed debt redemption costs of $0.03 per share. Of course, these are only some of the factors that will have an effect on balance of the year 2015 earnings as compared to 2014. Turning now to page 14, I will update you on select pending regulatory matters. Turning first to Illinois, in April Ameren Illinois made its required annual electric delivery rate update filing with the ICC. Under its formula ratemaking, Ameren Illinois is required to file annual rate updates to systematically adjust cash flows overtime for changes in cost of service and to true-up any prior period over or under-recovery of such costs. Our filings speaks of $110 million increase in net annual electric rates to reflect 2014 actual costs, expected 2015 infrastructure investments and prior period under-recoveries of costs. A summary of our filing is included in the appendix to this presentation. The ICC staff testimony filed in mid-July recommended a rate update that is just $3 million less than Ameren Illinois’ request. Interveners recommended rate updates that are $18 million to $19 million less than our request. As noted on this page, significant portions of these interveners’ adjustments relate to a position that the ICC has rejected in its past formula rate orders. An ICC decision is expected in December of this year with new rates effective early next year. Turning now to Page 15, we also have a natural gas delivery rate case pending in Illinois. In January of this year, we requested a rate increase based on a future test year ending in December 2016. As Warner mentioned, earlier this week Ameren Illinois, the Illinois Commerce Commission Staff, the Citizens Utility Board and the Illinois Industrial Energy Consumers filed a stipulation and agreement on issues in our pending natural gas delivery case. This agreement includes a 9.6% ROE, among other things. Our original rate request incorporated a 10.25% ROE while the staff had recommended a 9.31% ROE in their June testimony. For reference, the current allowed ROE for this business is 9.08% effective January of 2014. Our annual rate increase request is now approximately $45 million after incorporating the stipulation and agreement that I just mentioned. We estimate the ICC staff’s June testimony in this case adjusted for the stipulation supports an approximately $44 million rate increase. In addition to the parties to the stipulation, the Illinois Attorney General filed testimony in the case in June, which advocated a number of downward adjustments to our requested revenue requirement, most of them related to operating expenses. However, the Attorney General did not file ROE testimony. Our filing also included a proposal for a volume balancing adjustment for residential and small non-residential customers. This would ensure that changes in natural gas sales volumes do not resolve in an over or under-collection of natural gas revenues for these classes. And I am pleased to report that none of the parties to the case have opposed our request for this volume-balance adjustment mechanism. We expect the ICC to issue a decision by December with new rates effective by January of next year. A summary of this filing is also included an appendix to today’s presentation. Turning now to Page 16, I will update you on some regulatory matters pending at the Federal Energy Regulatory Commission. As previously mentioned, there are two pending complaint cases seeking to reduce the base-allowed ROE from MISO transmission owners, including Ameren Illinois and ATXI. The anticipated schedules for these cases are outlined on this page. In the first case, the ROE decision is expected to be based on market data for the six months ended February 11, 2015 and the schedule calls for an initial decision from an administrative law judge by the end of this November with a FERC final order expected sometime in 2016. In the second case, the ROE decision is expected to be based on market data for the six months ended December 31 of this year and the schedule calls for an initial decision from administrative law judge by the middle of next year with the FERC final order expected in 2017. Moving then to Page 17, in Missouri hearings were held last week for our proposed 2016 to 2018 Missouri energy efficiency plan. This plan would replace the current one, which has been in effect since 2013 and expires at the end of this year. The new plan would provide net customer benefits of $165 million over 20 years and reflects Ameren Missouri’s continued commitment to offering cost effective and realistically achievable energy efficiency programs for its customers. We expect the Missouri Public Service Commission decision early this fall and if approved the plan would be implemented beginning January 1, 2016. Finally, turning to Page 19, I will summarize our comments this morning. As Warner discussed, we continue to successfully execute our strategy. We delivered second quarter earnings that were solid and we expect our 2015 core diluted earnings per share to be in the range of $2.45 to $2.65 per share. In addition, we have a superior long-term earnings growth outlook driven by an above peer group average rate base growth plan that is focused on utility infrastructure investment in jurisdictions with modern constructive ratemaking. As Warner stated, earlier this year we reiterated our expectations for compound annual growth of 7% to 10% in earnings per share from continuing operations over the period 2013 through 2018 and we plan to formally update our long-term earnings growth expectations on an annual basis consistent with our planning cycles. That said, the $500 million to $1 billion of additional investment opportunities we discussed today and our added conviction concerning the ability to finance our growth through 2019 without the need for equity given the recent favorable settlement of our 2013 tax return, strong financial position and our outlook for cash flows certainly bolsters our confidence in our ability to achieve earnings growth within those expectations. When you couple our superior earnings growth outlook with Ameren’s dividend, which today provides investors with an above peer group average yield of approximately 4.1%, we believe our common stock presents a very attractive total return potential for investors. That concludes our prepared remarks. We now invite your questions. Question-and-Answer Session Operator [Operator Instructions] Our first question is from the line of Brian Russo with Ladenburg Thalmann. Please go ahead with your question. Brian Russo Hi, good morning. Warner Baxter Good morning Brian. Brian Russo The $0.5 billion to $1 billion of CapEx investment upside, when might we get an update on that and are there drivers or regulatory hurdles that you have to navigate through in order to feel comfortable increasing the existing CapEx budget? Warner Baxter Thanks for the question. I think really it’s going to be a matter of – we have talked before about our annual planning cycles and certainly wanted to provide greater clarity on some of the growth pipeline that we have been communicating about in the past. But we will be evaluating that potential CapEx over the remainder of the year, taking into consideration multiple factors, which is really about customer needs, balancing that with rate impacts, coordinating these projects and the timing of these projects with other projects that we have got ongoing over the next five years, making sure we have got the labor, vendor support, etcetera available to complete all those projects. So there are number of things that go into the assessment, but we would expect to complete that over the remainder of this year and certainly have included on the exact amount by the time we give guidance next February. Brian Russo Okay, great. And I would imagine that would be upside to the 6% rate base CAGR and correct me if I am wrong, but probably put you at the higher end of your EPS CAGR? Warner Baxter Well, we are certainly – as we have discussed on the call not updating our EPS CAGR. This added CapEx would certainly be incremental to the rate base growth that we have provided in the slide that we have. And as we mentioned on the call, certainly this added CapEx bolsters our confidence and our ability to achieve the earnings growth within the previously communicated expectations. Brian Russo Okay. And correct me if I am wrong, but you will not be paying cash taxes through 2016, is that accurate? Warner Baxter Yes. Through 2016, so as it stands right now, we will begin paying taxes again sometime in 2017. Brian Russo Okay, great. And then forgive me that I haven’t read through the gas stipulation yet, but what drove the higher ROE in this case versus your previously allowed ROE? Warner Baxter I can’t really recollect, going back to the last case the factors that got to that. But certainly here, we were successfully able to reach a compromise and accord with the other parties in the case. And the 9.6% is the outcome of those conversations and will be the ROE pending final decision by the IPC later this year. Brian Russo Just remind me that the previous gas rate case outcome was that stipulation or did that go to hearing? Warner Baxter No, it wasn’t. It went to hearings until that 9.08 from the final – for the previous case was the result of an ICC decision. Brian Russo Okay, great. Thank you very much. Operator Thank you. [Operator Instructions] Our next question is coming from the line of Glenn Pruitt with Wells Fargo. Glenn Pruitt Hi, guys. Good morning. Warner Baxter Good morning, Glenn. Marty Lyons Good morning. Glenn Pruitt Just for clarification, your statement that there will be no equity needs, does that include DRIP type programs? Marty Lyons Yes, Glenn. Thanks. Yes, if we weren’t clear, that is correct. As we talked about on the call, we are able to reach a settlement of our 2013 tax return with the IRS, which not only gave us the ability to book the gain we booked in discontinued operations, but also it took away uncertainty relative to the overall tax benefit that we have at Ameren Corp., which we reiterated on the call today, was about $454 million of accumulated tax benefits at Ameren Corp. So, with that added certainty, as we look at the CapEx investment plans that we have got, as we look at our overall financial plans looking out over the next 5 years, we really don’t see the need for any equity, including from the DRIP and 401(k). Glenn Pruitt Okay, great. Thank you. Marty Lyons Thank you. Operator Thank you. At this time, there are no additional questions. I would like to turn the floor back to Mr. Fischer for concluding comments. Thank you. We have next question coming from the line of David Paz with Wolfe Research. Please go ahead with your question. David Paz Hey, good morning. Marty Lyons Good morning, David. Warner Baxter Good morning, David. David Paz Just on the incremental investment opportunities, could you just roughly breakdown at least as you see it today, how much of that would go toward FERC-regulated transmission? Marty Lyons Yes, sure. David, this is Marty again. That $500 million to $1 billion really breaks down about a third, a third, a third between Illinois Electric Distribution, Illinois Gas Distribution and Transmission, FERC-regulated transmission. David Paz Okay, great. And second question, in your 7% to 10% EPS target or outlook, do you – are you still assuming rising ROEs in Missouri and Illinois? Marty Lyons Yes, David. Sure. Just going back to the guidance we have given there, that growth has always been driven by the transparent rate base growth plans that we have got, the reduction of parent and other costs, monetization and reinvestment of the tax assets and certainly, the expectation of rising interest rates and ROEs over time. David Paz Okay. How about the assumed sales growth in that outlook? Marty Lyons The assumed sales growth in that outlook, David, has been about flattish as what our projection is really out through time. That’s about what we have been seeing this year, frankly, in terms of the overall sales growth when you take into considerations the energy efficiency programs that we have got. It’s about flat year-to-date and we expect residential and commercial sales this year again excluding the impacts of our energy efficiency programs in Missouri to be about flat. So, that’s the expectation embedded in those longer term plans. David Paz Great, thank you. Thank you so much. Warner Baxter Thanks, David. Operator Our next question – gentlemen, at this time, we have a question coming from the line of Joe [indiscernible] with Avon Capital. Please go ahead with your question. Andy Levi Hi, it’s Andy Levi from Avon. How are you guys doing? Warner Baxter Hey, Andy. Marty Lyons Andy, how are you? Andy Levi That was a really good rundown. Just want to make sure I heard it correctly, so literally no equity at all, DRIP, ESOP, anything through ‘19, is that what you said? Marty Lyons Yes, Andy. That is what we have said. Andy Levi Okay. So, whatever the share count is today that’s what it should be in 2019, is that correct? Marty Lyons That’s our expectation as we sit here today, Andy, yes. Andy Levi Okay, great, because I had built in a little bit. Okay, otherwise, I think everything else was pretty clear. When do you typically update your CapEx forecast and the $500 million to $1 billion or whatever else you may come up with, when could we possibly – will that be at EI or will that be next year? Marty Lyons Andy, as I said in response to a question a little while ago, we will continue to evaluate that over the remainder of this year. Most likely, I would say we would give an update in February. And if we have greater clarity to provide before that, we would do so. But as we go through our annual planning process, it generally lines up that we would be able to give a comprehensive update on CapEx and rate base growth plans in February. Andy Levi And I thought you and Warner gave a really good rundown today. So, good job. Warner Baxter Thanks, Andy. Marty Lyons Thank you, Andy. Operator Our next question is coming from the line of Kevin Fallon with SIR Capital Management. Please go ahead with your question. Kevin Fallon Hi. I am sorry if you already walked through this and I missed it, but on the incremental $500 million to $1 billion of CapEx, I thought you said it was like a third each among the different buckets you highlighted. Can you walk through the thresholds of what you need to do to get approval to do that? Will the – is it purely formula rates that you won’t need to get approval from the ICC or the FERC or will they have to sign off on the spending? Marty Lyons No, no real sign-off on the spending. I mean, if you go back after the call and read through the transcript, I think we gave some pretty good description of the types of projects that we are looking at, which in a lot of cases is replacement of aging infrastructure, putting new service in where needed based on certain changes in growth, in customer usage, as well as certain expenditures that we believe we are going to need to make to meet the safety code requirement and otherwise improve the safety and reliability of our system. So, all of these expenditures look like they are needed for customer service and don’t look to require any specific regulatory approvals. Kevin Fallon So, just to clarify there, it’s effectively, as long as you guys, you being Ameren deem that they are required and needed that it’s basically file and implement? Warner Baxter Yes, absolutely. And as I said earlier in response to a question obviously, we have to weigh all this with the timing of other projects we have got in our pipeline, make sure that we can execute these well for the benefit of our customers and certainly need to weigh these customer needs in these projects again with other projects in our system and with the rate impacts. Kevin Fallon Okay, that’s great. Thank you. Warner Baxter Thanks, Kevin. Operator [Operator Instructions] Thank you. At this time, I will turn the floor back to Mr. Fischer for closing comments. Doug Fischer Thank you for participating in this call. Let me remind you again that a replay of the call will be available for 1 year on our website. If you have questions, you may call the contacts listed on today’s release. Financial analyst inquiries should be directed to me, Doug Fischer. Media should call Joe Muehlenkamp. Our contact numbers are on today’s news release. Again, thank you for your interest in Ameren and have a great day. Operator Thank you. This concludes today’s teleconference. Thank you for your participation. You may now disconnect your lines at this time.

IDACORP’s (IDA) CEO Darrel Anderson on Q4 2014 Results – Earnings Call Transcript

IDACORP Incorporated (NYSE: IDA ) Q4 2014 Earnings Conference Call February 19, 2015 04:30 PM ET Executives Lawrence Spencer – Director, IR Steve Keen – SVP, CFO and Treasurer Darrel Anderson – President and CEO Vern Porter – VP, Idaho Power Analysts Paul Ridzon – KeyBanc Capital Markets Brian Russo – Ladenburg Thalmann Andy Levi – Avon Capital Advisors Operator Welcome to IDACORP’s Fourth Quarter 2014 Conference Call. Today’s call is being recorded and webcast live. A complete replay will be available from the end of the day for a period of 12 months on the Company’s Web site at www.idacorpinc.com. [Operator Instructions] At this time, I would like to turn the call over to IDACORP’s Director of Investor Relations, Mr. Lawrence Spencer. Please go ahead. Lawrence Spencer Thank you and good afternoon. As you have probably seen we issued our earnings release and Form 10-K before the markets opened today and they are both posted to the IDACORP Web site. We will be using a few slides to supplement today’s call, and you can also find those on our Web site. We will refer those slides as we work our way through today’s presentation. On today’s call we have Darrel Anderson, IDACORP’s President and Chief Executive Officer; and Steve Keen, IDACORP’s Senior Vice President, Chief Financial Officer and Treasurer. We also have other individuals to help answer your questions during the Q&A period. Before turning the presentation over to Steve, I’ll cover our Safe Harbor statement on Slide 3. Our presentation today will include forward-looking statements. While these forward-looking statements represent our current judgment or opinion of what the future holds, these statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. So we caution you against placing undue reliance on these forward-looking statements. Some of the factors and events that could cause future results to differ materially from those included in forward-looking statements are listed on Slide 3 and included in our filings with the Securities and Exchange Commission, which we encourage you to review. On Slide 4, we present our quarterly and year-to-date financial results. IDACORP’s fourth quarter 2014 earnings per diluted share were $0.69, an increase of $0.14 per share from last year’s fourth quarter. For the 2014 earnings per diluted share were $3.85, $0.21 more than last year’s comparable period. I’ll now turn it over to Steve to discuss the end results in greater detail and review our estimated 2015 key operating metrics. Steve Keen Thanks, Larry and good afternoon, everyone. I’ll cover the reconciliation of earnings from 2013 to 2014, our cash flow and liquidity positions and as Larry mentioned some estimated 2015 key operating and financial metrics. To help understand our 2014 results on Slide 5 we present a reconciliation of earnings from 2013 to 2014. Overall net income increased by $11.1 million largely due to lower income tax expense resulting from a tax method change that I will discuss in a moment. Idaho Power’s operating income declined by $38 million from 2013 to 2014. Lower overall usage in the residential and irrigation customer classes due to more moderate temperatures and greater precipitation reduced operating income $38.1 million year-over-year. Those impacts were partially offset by increased sales from customer growth which benefited operating income by $9.1 million compared to 2013 the weather in 2014 was much more moderate. In 2013 we experienced increase heating and cooling degree days throughout the year at records level compared with the previous 10 years. Operating expenses in 2014 were also higher by $8.4 million due to greater labor related expenses along with increased depreciation and property taxes. Increased revenue sharing also reduced our operating income slightly as we will again share benefits with our Idaho customers under our Idaho regulatory settlement. Greater average construction work in progress representative of our ongoing construction activity resulted in a $3.9 million increase in the allowance for funds used during construction also an $11.6 million gain on sale of investments in 2013 did not repeat in 2014. The $29.1 million decrease in income tax as shown in the table represents the impact of a tax method change related to Idaho Power’s capitalized repairs deduction. This amount reflects the combined impact of $4.6 million of tax expense recorded in 2013 and $24.5 million of tax benefit recorded in 2014. We and others in the utility industry originally expected the new regulations to have a negative impact on capitalized repairs deduction. This expectation let us to accrue the $4.6 million of tax expense in 2013. New guidance from treasury in mid-2014 modified our interpretation and increased our expected benefits. This updated guidance was reflected in our 2013 tax return which we filed in September of 2014. A resulting additional tax benefit for the 2013 tax year was included in our third quarter 2014 financial results. In the fourth quarter of 2014, we completed our adoption of the new method for all years prior to 2013. The $29.1 million decrease in income tax is on the table reflects the impacts of the method change on all tax years through 2013 as well as the reversal of $4.6 million tax accrual recorded in calendar year 2013. The methodology underlying this change is expected to deliver a level of increased benefit annually based on the nature and amount of capital work performed each year. The table reflects that we recorded $7.8 million of additional tax benefit related to capitalized repairs in 2014, compared to the original tax accrual for 2013 which was based on the prior capitalized repairs methodology. And note 2 of the financial statements in the 10-K we filed today, the federal tax portion of this deduction is included in the line titled Capitalized Repairs Cost and the change from 2013 to 2014 is reflective of the single year federal income tax benefit from the new repairs methodology. The previously discussed $29.1 million of tax method change is reflected on the following line titled tax method change, capitalized repairs where the comparison of 2013 to 2014 reveal the impacts related to prior years. As we look at our potential future results we generally excluded the tax method change impacts from our earnings estimates. We are not currently aware of any additional forthcoming changes in tax policy that might cause adjustments to prior years. Please note that the capitalized repairs deduction originates in Idaho Power. An effective tax rate in the low 20s is what we currently estimate for Idaho Power next year. The remaining $19.8 million reduction in income taxes for 2014 primarily resulted from lower pre-tax income in 2014 compared with 2013. Moving now to Slide 6, we show IDACORP’s operating cash flows for 2014 and the liquidity position at December 31. Cash flows from operations for 2014 were $364 million, an increase of approximately $59 million over 2013. Changes in power supply cost collected under the Idaho Power cost adjustment mechanism drove most of the increase in operating cash flows. IDACORP and Idaho Power currently has in place the credit facilities of $125 million and $300 million respectively to meet short-term liquidity and operating requirements. The liquidity available under the credit facilities is shown on the bottom of Slide 6. Also there are 3 million IDACORP common shares available for issuance under IDACORP’s continuous equity program, no shares were issued during 2014 and we did not expect to issue new equity during 2015, except for modest amounts relating to employee compensation plans. Turning now to Slide 7, we are estimating 2015 O&M at between $340 million and $350 million. As you can tell from Slide 7 this is less than the actual 2014 expense of $355 million which I will speak to in a moment. Also we did not amortize any additional accumulated deferred investment tax credits in 2014, instead under our Idaho regulatory settlement in 2014 we recorded $8 million of current revenues to be refunded to Idaho customers and $16.7 million of additional pension expense further reducing the amount of pension benefits needed to be collected from customers in the future. Our 2014 O&M expense included the $16.7 million, removing this impact we anticipate only a modest increase in O&M for 2015 reflecting our ongoing diligence around actively managing cost. Our estimated capital expenditure range for 2015 is between $300 million and $310 million which includes between $45 million and $50 million for emission control equipment at the Jim Bridger plant. Page 54 in the Form 10-K filed today details some examples of anticipated ongoing infrastructure projects. For 2016, the estimated capital expenditure range is also from $300 million to $310 million. In total over the next five years we expect capital expenditures to approximate $1.5 billion. On the next role of Slide 7 we show that our expected 2015 hydroelectric generation ranges from 7.0 million to 9.0 million megawatt hours. As a reminder the median annual hydroelectric generation is 8.5 million megawatt hours. Finally we are initiating our 2015 earnings per share guidance in the range of $3.65 to $3.80 per diluted share which reflects normal weather conditions in our expectations of continuing effective cost management. As of today we do not expect to amortize additional accumulated deferred investment tax credits in 2015 under our new Idaho regulatory settlement. I’ll now turn the presentation over to Darrel. Darrel Anderson Thanks, Steve and good afternoon everyone. For 2014 we saw our seventh consecutive year of net income growth. In addition to that achievement I want to highlight a few of these 2014 items before looking forward. First Idaho Power’s 2014 return on year-end equity in the Idaho jurisdiction exceeded 10.5% which resulted in the company using no additional amortization of accumulated deferred investment tax credits under the 2011 Idaho regulatory settlements. In fact we got another year Idaho Power will share earnings with Idaho customers of almost $25 million. Over the last six years the company has returned over $118 million to customer reflecting a fact that the mechanism has been a win for customers as well as for shareholders. Additionally as illustrated on Slide 8 and as we have previously discussed we executed a new settlement during 2014 that extends many of the benefits of the 2011 settlement potentially through 2019. Which we again believe is a benefit to both shareholders and customers. As a final note on regulatory matters we have no intention to file a general rate case in 2015. Second as to our large infrastructure projects at the end of 2014 we achieved a notable milestone in one of Idaho Power’s two 500 kilovolt transmission projects the 300 mile Boardman to Hemingway line. On December 19th the Bureau of Land Management released the draft environmental impact patch statement for the project. Comments are due in March of this year with the expectation that a final environmental impact statement will be issued by the BLM during 2016. Third in 2014 we implemented safety for life an initiative to increase employees’ safety awareness and improve employees’ safety behaviors and practices while maintaining OSHA recordable injury rates well below utility industry national averages. For 2014 we saw a 40% reduction in the company’s OSHA recordable rate compared to 2013. Safety is one of Idaho Power’s core values and our employees have worked hard to focus on safety asses the hazards of our work make safe choices on how we work and speak up when see hazardous situations. We have made good progress and we will work to continue that positive safety momentum in 2015 and beyond. Finally in 2014 Public Utilities Fortnightly named Idaho Power to its prestigious list of 40 best energy companies. Our company made a substantial jump in the rankings from 29 to 17 with our fully integrated business model cited as a key to the company’s continued success. Looking forward on the resource planning side Idaho Power intends to file its 2015 integrated resource plan by mid-year. This by annual planning document is our 20 year roadmap for meeting customer demand in a responsible cost effective way. In addition Idaho Power will continue its optimization efforts targeted to prudently managing both operating and maintenance expenses and capital expenditures. While we continue that focus on cost management we will also continue our active promotion of growth in Idaho Power service area. During the past four years we have experienced growth in our customer count and we have seen and helped to promote positive economic development. We are seeing those efforts pay off as a number of large businesses have elected to locate or expand their operations in our service territory. Slide 9 shows our customer growth increase of 1.4% from 2013 to 2014. During 2014 Idaho Power’s customer count grew by more than 7,300 customers. We believe that this growth will continue our most recent load forecast which we expect to incorporate into the 2015 integrated resource planning process predicts a 1.4% five year compound annual growth rate in residential loads and a 2.1% five year compound annual growth rate in residential customers. Other indicators of the economic condition of our service area include in an unemployment rate in our Idaho service area of 3.6% at December 31, 2014 compared to 5.3% a year ago and a national rate of 5.6%. In addition gross area product for our service area as reported by Moody’s Analytics grew by 1.9% in 2014 and is projected to grow 3.1% and 3.5% in 2015 and 2016 respectively. Slide 10 is a look at the projected March to May weather outlook. Temperatures for January were 2 to 6 degrees above normal for the entire region with the exception of the lower Treasure Valley which averaged 1 degree below normal. Precipitation was below normal for the entire region. During February, we expect temperatures to be slightly above normal. March through May projection suggests that there is an equal chance for above or below normal precipitation in Idaho Power service area and a 40% to 50% chance of above normal temperatures. An additional area of focus I want to mention today has been IDACORP’s dividend. From the beginning of 2012 to 2014, IDACORP’s Board of Directors has approved a collective 57% increase in the quarterly dividend from $0.30 to $0.47 per share. You may remember that in September of last year the IDACORP Board approved an increase in the quarterly dividend rate from $0.43 per share to $0.47 per share, a 9.3% increase. This was continued progress toward achieving IDACORP’s previously adopted target dividend payout ratio of between 50% and 60% of sustainable IDACORP earnings. Management continues to anticipate recommending to the Board additional annual increases of over 5% until the dividend reaches the upper end of the target dividend payout ratio. One last bit of news for you is that the Governor of Idaho, Butch Otter announced yesterday in a news release that Kristine Sasser, a veteran legal counsel for the Idaho Public Utilities Commission will succeed retiring Commissioner Marsha Smith on a three-member commission. Commissioner Smith is retiring after serving on the commission since being appointed in 1991. Like Commissioner Smith, Sasser is a Democrat and will serve a six-year term as commissioner. Sasser’s final appointment is subject to Idaho Senate confirmation. And now I and others on the call will be happy to answer questions you may have. Question-and-Answer Session Operator Thank you. Ladies and gentlemen, we will begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Paul Ridzon of KeyBanc. Your line is now open. Paul Ridzon Was weather in ’14 I know is below that of ’13, but how did it compare to normal? Darrel Anderson Paul, we will say it is pretty close to normal if anything it may have been slightly on the low side, but it’s very close, it was much more would approximate a normal year than ’13. Paul Ridzon And I saw you had 10% industrial sales growth in the year what drove that? Darrel Anderson Well, Paul I’d say that most of our growth is coming from items that you would say are not headline news, it’s not big customers it’s kind of some growth with our customers that have already been here, we’ve had some expansions, we’ve had announcements that we have put out a few years ago that some of those are now coming online and expanding their lines of operations and it’s really been small increments across the board but I think industrial picked up and we continue to have residential inflow as the State of Idaho still looks like a favorable place to live. Paul Ridzon And you said, you indicated low 20s for your effective tax rate in this year? Darrel Anderson That’s correct Paul. Paul Ridzon And where do you see that going in the next couple of years? Darrel Anderson Paul based on the primary impact on that is the repairs deduction and with our planned expenditures being fairly close to what we did this year and fairly level over the next few years around $300 million, we don’t expect major shifts. It is based on the type of additions you do each year and it’s a very technical process that is work order by work order but as we would just look ahead, we would think that we don’t see wild changes in that as we move forward. So that’s the primary change from where we have been is the stepped up benefit coming out of the repair side. Paul Ridzon So kind of think low 20s for the next few years? Darrel Anderson Yes we didn’t — I haven’t looked at the rate beyond next year, the rate for us I would give you one cautionary thing there is the rate is sensitive to changes in the top-line. So as our revenues go up, the flow through items don’t necessarily move up and down based on changes in the top-line and ’13 is a good example of that, if you go run the numbers for 2013, you’ll see that income before taxes is a lot higher while there is flow through doesn’t necessarily lift up in proportion and so what happens as you get a higher tax rate because you’re not getting additional flow through items for those additional revenues to show up. So part of predict down in the future in our 20% — low 20s is really related to next year, as we sit here today. Paul Ridzon And Darrel I had one question, do you think it will be okay if Steve and his guys didn’t make cash for this year? Darrel Anderson I will let Steve respond to that one. Steve Keen Paul I am not worthy of that Dean Marko and his team are probably the ones you need to talk to on that, they do a fine job for it that is for sure. Operator Thank you. Our next question comes from Brian Russo, Ladenburg Thalmann. Your line is now open. Brian Russo Just to clarify your response to the last question is the below 20% tax rate is that for 2015 or is that for 2016? Darrel Anderson 2015. Brian Russo Okay. Darrel Anderson That is through the NSDM but yes that is 2015. Brian Russo And your guidance it doesn’t assume any sharing does it? Darrel Anderson We didn’t really address that but if you look at where we were first of last year where we said zero to $5 million of ADITC that’s an indicator we’re down near the floor where we are bumping into the 9.5%. There is a band of roughly $10 million I would say between there and where we begin this year you add in this for the tax item added little over $7 million last year it doesn’t necessarily drive the up to level where you look at sharing. So because we didn’t actually published the exact number we had in our early forecast somewhere between zero and five for last year. And we move somewhere above the 9.5 line but my guess is that it’s not enough to shift with the sharing. Steve Keen By the line is Brian that range that we have out there. We would anticipate that we’re within that debt band area because obviously we’re not using credits and so we’re kind of living that debt band for with the range that we provided. Brian Russo And could just elaborate on some of the commentary in the 10-K around the EIRP you guys say that you’ll be able to meet near term peak capacity deficit until Boardman to Hemingway is completed in 2021. Can you just maybe elaborate on that? Darrel Anderson So as you know we are right now in the middle of the IRP process we’re kind of going though the IRPAC process and meeting with constituents that work on that process. And if you look at our disclosure around on Page 15 of our 10-K we do talk a little bit about what some of those assumptions are that give rise to the date being what we’re say right now is in 2021 or so. So there are number of things the impact that probably one of the biggest things right now we don’t have a really good answer for us what might be the impact of one 11-D. As you know we made hear something back from BPA later this year on that — that could have an impact our growth numbers may have an impact. We talk about new large loads that could have an impact. But based on the assumptions that we have in there today we are seeing that from a capacity perspective as we sit today on peak hour basis 2021 or beyond is where we stand right now. Which does think up at least today with respect to what we are anticipating the potential in service date that we could see for Boardman to Hemingway again what I would tell you is we’re right in the middle of that process and we’re going have to let that process play out. We get a chance to update you on that likely at end of our first quarter call because we’ll be pretty close to that will be well down the line as it relates to the IRP. So you’ll some insights there as to what direction that might be headed. I wish I could give you more definitive answers but right now it would be the cart way before the horse is based on where that process is today. Brian Russo And then just to clarify the change in the capitalized repair cost from ’13 to ’14 roughly $7 million to $8 million, that’s what ongoing correct? Darrel Anderson That’s representative an annual amount. So that’s why we highlighted that pulled it out of the prior year adjustment. It could vary it’s going to vary based on the actual capital that we spend and what kind of items that we might get called by this repair but we think that representative of what we expect in the future. Brian Russo And then just lastly just an update on Gateway West transmission line. Darrel Anderson What kind of update would like Brian it’s ongoing well I can do is that Vern Porter who is with us today. Who will be able to speak to Gateway West? Vern Porter So back in November 2013 if you remember the deal initiative record to a decision for most of the project and we are continuing to work on the two most Western segment 89 that travel through the birds of prey area here before I get to the Hemingway substation. So the decision has been made to do a supplemental EIS environmental impact study for that project and we expect that the BLM issues a record decision sometime in 2016 with respect to that. So worker is continuing and environmental we’ll continue to work on that and secure that record of decision. Brian Russo And remind me what is the total cost of that line is and what at a group share? Darrel Anderson So Brian our estimated cost on that line is $200 million to $400 is what we project that to be. But that’s beyond the high-end forecast periods that we have right now and we would looking to spend those dollars. Brian Russo And just curious if everything goes well with the permitting as you stand today hypothetically when would this transmission line be operational. Darrel Anderson So Brian you’re still speaking to Gateway right. Brian Russo Yes certainly. Darrel Anderson Okay, okay Vern you want to? Vern Porter Yes we expect that the project will built from the east to the west, so we expect it sometime in the maybe end of this decade early decade that pacific core will be building from Eastern Wyoming to cross to our popular substation which is also their popular substation and actually we joint own it, but sometime in that timeframe. And then going all the way across Southern Idaho to Hemingway substation be sometime maybe early to mid next decade. Operator Thank you. Our next question comes from Andy Levi or Avon Capital Advisors. Your line is now open. Andy Levi Just want to make sure I am very-very clear on this, so let’s just call it the 8 million is for the repairs tax it’s about $0.15 a share in ’15 and I guess my understanding is that you have about $300 million of CapEx every year, right? Darrel Anderson Correct, that is our current estimate. Andy Levi And the CapEx is very similar each year. So with the exception of having to go in for rate case which you don’t see for the foreseeable future that $0.15 theoretically should continue in ’16, ’17 and even ’18, so is that kind of a fair way to look at it? Darrel Anderson That is what we’re telegraphing and I would say there is variability around it, could it be off 10%, 20% if things move year-to-year and we’ll watch that as we get closer. But we certainly have stepped up an increment from where we were prior to this new guidance. Andy Levi And what would make it move around just to understand that mechanically either high or lower? Darrel Anderson It’s really dependent on the actual work that we do and… Andy Levi So could you be more specific on that like what quality… Darrel Anderson So example, you could have a storm that blows down effects your line and it is exactly dependent upon how much of line would get replaced and there is a limit that qualifies for a repair and if it goes beyond that then it wouldn’t qualify for repair. I would say that overtime, we tend it to be fairly predictable with our repairs, and if you look at it note 2 that we have it’s a pretty steady number that we’ve had in there in the past. So I… Andy Levi How much is that of your total CapEx if it qualifies for a repair? Darrel Anderson I’ll turn it over here to our tax experts to… Andy Levi Thank you, I am just curious, I want to really understand this. Darrel Anderson If you want to see the gross number, the non-tax effective numbers you to note 2 to the capitalized repairs cost line it’s on Page 91 of our 10-K. Andy Levi Okay. Darrel Anderson And you divide it by 35% you will get a gross number and that would be a gross deduction that will be comparable to what would be seen pulled out of our capital spend as a repair deduction. Andy Levi I don’t understand what Page 91 of the 10-K 35%, which note is it? Darrel Anderson Note 2 the first table in note 2 and the line is called capitalized repair costs. Andy Levi Right, okay. Darrel Anderson $26 million and you divide that by 35% that gives you a gross. Andy Levi Got it, and that’s a total kind of CapEx number, this really not big a number out of the total CapEx I guess? Darrel Anderson That’s about 75 million if you do that math Andy. Steve Keen That’s the portion of the CapEx. Darrel Anderson To be qualified. Steve Keen Yes. Andy Levi So that continues on until either you don’t have that repairs amount, or let’s just assume that you do every year, assume your repairing things all the time, what would make it go away is it a rate case or… Steve Keen Well in terms of how, that is a good question, in terms of how it provides an income lift is it would predominantly be a rate filing, that when you do a rate filing you reset everything that’s included in cost of service and it should be one of the line items that would be part of that, so you would see an adjustment at that time. You could change in the regulations clearly has moved it in this case, it was a change that lifted our expectations for future deductions and just a change in what you are in terms of your expected types of CapEx, and we put we highlighted a few more infrastructure changes in our 10-K this year to give you an idea of the ongoing nature of what we’re doing, but as you look through those we’ll see that they really are things that last over period of time it’s not like a big project, it’s going to be done in six months that’s really things we do each year. Andy Levi And I know categories flow through I guess from what [indiscernible]? Steve Keen Yes, and the flow through relates with why we don’t put the deferred taxes against that which would eliminate it having an income impact it would simply be a cash benefit and that is due to a choice that was really made by our regulator in Idaho that that is the method of accounting we follow for these and it’s a couple of decades old that we’ve been on that methodology. Andy Levi And then it’s really the tax ruling from last year that’s kind of increased the amount I guess right? Steve Keen Right and the repairs regulations impact a lot of industries other than utility. I think prior to this updated regulation utilities were one of the more predominant users of repairs and I know the initial thoughts were that when the regulations were issued. It appears that there might be a little more constrained in terms of what would qualify and what would not and it was really some clarifications that came out mid last year. That explained that in a way that we could see that the products won more benefit we actually brought that back put it into a tax return gave that through the IRS and they looked at it for 2013 and we have a result that has been agreed to for last year that’s now reflected and it’s really that methodology that we drilled into 2014. Andy Levi And IRS doesn’t have to approve it every year right, now it’s kind of like a given right? Steve Keen Well they will look at the tax return every year I mean we do get out of it annually. But the fact that I get some comfort in the fact that they did look at our tax return last year that had a new methodology and we reached an agreement and as Dean’s team goes forward they take what they learn out of each audit supply candidate in the next year. So you have it is not a guarantee they’re going do everything exactly the same year-to-year. But it’s nice to have that current of the year that they have reviewed. Andy Levi And then basically this obviously adds your common equity. So gives you head room as far as you ROE is concerned and obviously [indiscernible] that way and it also allows you between that and your ADITC state of the greater enough for quite some time. But when you do go back whenever that maybe if it’s 2019 or 20 or whenever it is when you go into the rate arena that’s when the rate based would be trued up based on this, is that correct? Steve Keen We would true up everything that we would true up rate base and you would also true up your cost to service line all your expenses would be updated as well. Andy Levi So really behaves you stay out as long as possible at the same time benefits the customer because you’re not going in for rates? Steve Keen Well I would say that repairs deduction does provide cash flow as well you get the deduction and you also get some cash from that. The decision on whether you file a rate case is really more something you look at independently and we watch both the rate base side and the cost service side and it’s really when that gets out a balance and you feel like you need to go recover more ten you go file. Don’t know that this is really viewed as an item keep us out is another change and it does help our earnings little bit and provide some cash flow. But if you spend enough on CapEx you still have the need for rate case. Andy Levi I’m probably getting daggers from people here in New York who wants to go home. So lot of question I had offline but thank you very-very much. Operator [Operator Instruction] That does conclude today’s question-and-answer session Mr. Anderson I will turn the conference back over to you. Darrel Anderson Thank you and thanks everybody for participating on our call this afternoon. We actually also are with you with all the tough weather a lot of you guys have had here this winter and we hope you guys are all surviving and we also appreciate your continued interest in our Company. We look forward to talk to you guys in the future. Thanks a lot. Operator That concludes today’s conference. Thank you for your participation. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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