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Northwest Natural Gas’ (NWN) CEO Gregg Kantor on Q4 2015 Results – Earnings Call Transcript

Operator Good morning and welcome to the Northwest Natural Gas Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Nikki Sparley, Investor Relations Manager. Please go ahead. Nikki Sparley Thank you, Andrew. Good morning, everyone and welcome to our fourth quarter 2015 earnings call. As a reminder some of the things that will be said this morning contains forward-looking statements. They are based on management’s assumptions, which may or may not come true. You should refer to the language at the end of our press release for the appropriate cautionary statements and also our SEC filings for additional information. We expect to file our 10-K later today. As mentioned, this teleconference is being recorded and will be available on our website following the call. Please note these conference calls are designed for the financial community. If you are an investor and have questions, please contact me directly at (503) 721-2530. Media may contact, Melissa Moore, at (503) 220-2436. Speaking this morning are Gregg Kantor, Chief Executive Officer and Greg Hazelton, Senior Vice President, Chief Financial Officer, and Treasurer. Mr. Kantor and Mr. Hazelton have some opening remarks and then will be available to answer your questions. Also joining us today are other members of our executive team, who are available to help answer any questions you may have. With that, I will turn it over to Mr. Kantor for his opening remarks. Gregg S. Kantor Thanks Nikki, good morning everyone and welcome to our fourth quarter and year-end earnings call. I will start today with highlights from the year and then I will turn it over to Greg Hazelton to cover our 2015 financial performance. Finally I will wrap up the call with a look forward. In 2015 Northwest Natural successfully navigated a number of challenges while still achieving our key financial and operational goals. Our financial challenges came early in the year with Oregon experiencing the warmest winter on record. The impact was substantially mitigated by our weather normalization mechanism which has been place since 2003. However, we experienced lower volumes and revenues as about 20% of our customer base is not covered by the mechanism. In addition in February 2015, the Oregon Commission approved a mechanism that allows us to recover, prudently incurred environmental clean-up cost allocated to Oregon associated with our historic manufactured gas operations. We began collection of our environmental expenditures through this mechanism known as the SRM in November of last year. However, as part of the February 2015 order, the OPUC disallowed environmental expenses totaling $15 million based on the application of an earnings test for past years when the company earned above its allowed rate of return. As a result, we took an after tax charge of $9.1 million in the first quarter of 2015. In response to the warm winter and the disallowance, management instituted a number of temporary cost saving measures. Through these targeted efforts we reduced budgeted O&M levels by approximately $5 million or about $0.11 per share. And I am proud of our employees whose hard work and commitment allowed us to accomplish this while still remaining dedicated to exceptional service and safety. Despite the financial headwinds our core utility performance remained solid with higher margin and continued customer growth. Part of this performance stems from the strength of our region’s economy and you can see that strength in a number of trends including in migration and housing growth. Oregon is experiencing strong population gains particularly attracting college educated workers between the age of 25 and 34. In fact Oregon ranks sixth in the nation for in migration of degree holders who are beginning or mid career. These young working age households are considered vital for both regional economic development and longer term growth. In the last year average monthly employment in the Portland Vancouver metro area increased by about 35000 new jobs equating to an annual employment growth rate of 3.2% which exceeded the average national rate by more than 1%. Over the last 12 months the unemployment rate in the Portland and surrounding metro areas sell 100 basis points to 5.3%. We’re also seeing strong housing growth in the Portland Vancouver area with a 25% increase in single family building permits in the last 12 months. And in the last year, home sales were up about 20% in Portland and average home prices increased by 6.5%. In Park County [ph] Washington where about 11% of our customers are located, home sales were up 19% for the year and average home prices were up 8.6%. All of these factors contributed to a fast growing Oregon economy. In fact Oregon’s economic health index rose the most in the nation through the first three quarters of 2015 according to the latest Bloomberg economic evaluation of states report. These were all good signs our economy continues to move in the right direction. On the operations front we had an excellent year with a continued focus on safety and reliability. We hit a milestone in the fourth quarter when we removed the final known bare steel pipe from our distribution system making our system one of the most modern in the nation. This achievement was supported by trackers established with the help of the commission more than three decades ago. In 2015 we once again reached our emergency response goals of answering 90% of emergency calls within 10 seconds and responding to damage and protocols onsite within 30 minutes on average. During the year we also began several multiyear infrastructure projects to ensure the continued reliability of our system and support customer growth. These ongoing investments include improvements totaling $25 million at our Newport LNG facility to modernize that plant and $25 million of upgrades are being made to our system in Vancouver, Washington also over the next several years to increase pressure levels to support our service territories fastest growing community. Safety and reliability coupled with affordability make natural gas a very competitive fuel source. In 2015 we were able to strengthen that position by reducing residential customer rates in Oregon by 7%, by 14% in Washington. This rate reduction was a reflection of the lowest natural gas commodity prices we’ve seen in 15 years. And finally for the sixth time in nine years we posted the highest score among large gas utilities in West in the 2015 JD Power Residential Customer Satisfaction study. This also marked the eighth time in nine years of ranking among the top two highest satisfaction scores in the nation. These results reflect our continued commitment to operate reliably, safely, and with high quality customer service in the communities we serve. With that let me turn it over to Gregg to cover our financial results and provide the 2016 guidance. Gregory C. Hazelton Thank you, Gregg and good morning everyone. Today I’ll start with a review of the fourth quarter results, followed by a discussion of our annual performance, and close with 2016 earnings guidance including key assumptions for the year. For the fourth quarter we reported improved consolidated results with net earnings of $1.08 per share or $29.7 million compared to $1.04 per share or $28.5 million for the same period last year. Consolidated results were driven by higher utility margin and other income, partially offset by increased O&M expense. Looking at our segment results, for the quarter our utility segment net income increased $1.1 million based on a $2.6 million increase in utility margin and then $1.8 million increase in other income, offset by a $2.4 million increase in O&M expense. The utility margin -– the increase in utility margin was predominantly driven by customer growth with over 3,300 new meter sets installed in the fourth quarter, which is nearly 1% higher than the prior year. In addition, utility margin benefited from the gas cost sharing gains as a result of lower actual gas prices than rates in Oregon -– in the Oregon purchase gas adjustment mechanism. Utility O&M for the quarter increased primarily reflecting higher incentive compensation, retirement, and healthcare costs. During the quarter, our gas storage segment earnings improved slightly reflecting some positive trends. Our Mist gas storage facility continues to perform well and operating results remained strong and comparable to the prior year. Gill Ranch realized an uptick in revenues reflecting higher contract prices for both firm and optimization contracts. Additionally, operating expenses decreased as we managed the business to a lower cost structure which we expect to benefit from in 2016. Also in December we redeemed the remaining Gill Ranch note, prior to its November 2016 scheduled maturity. Turning to our annual consolidated results, net income was $1.96 per share or $53.7 million compared to $2.16 per share or $58.7 million in 2014. As previously discussed, the company recognized a non-cash, after-tax $9.1 million environmental disallowance related to the February 2015 SRRM order. This charge was reported as O&M expenses in the first quarter of 2015. Excluding this charge consolidated earnings were $2.29 per share or $62.8 million, an increase of $0.13 over 2014. Annual results were largely driven by higher utility margin and other income, offset by increased O&M expenses. For the year utility net income increased $3.9 million, excluding the impact of the $9.1 million charge. Higher net income was largely driven by a $5.3 million increase in utility margin, a $6.6 million increase in other income, and a $2.4 million decrease in interest expense, offset by $7.2 million increase in O&M expense, and a $1.8 million increase in depreciation expense. In November we began collecting revenues from customers through the environmental mechanism or SRRM. For the -– for 2015, these collections totaled $3.5 million and are included in operating revenues with a corresponding offset for the amortization of environmental regulatory asset. For the year, utility margin increased primarily driven by strong customer growth with the addition of more than 9,700 customers and gains from our gas cost incentive sharing mechanism. These increases were offset by lower margin from customers not covered by weather normalization as the region experienced exceptionally warm weather. The $6.6 million increase in utility, other income was primarily due to the recognition of equity earnings on deferred environmental expenditures as a result of the February 2015 order. Excluding the regulatory disallowance, utility O&M expense increased over last year, primarily due to an increase in compensation and benefit expense, which included higher employee incentive compensation, retirement and healthcare costs, as well a new union labor contract that was effective June 2014. In addition, non-payroll expense increased from higher professional service and insurance cost. In the second half of 2015, management implemented a number of temporary cost saving initiatives to mitigate the unplanned effects of warm weather and the disallowance. These targeted initiatives resulted in approximately $5 million or $0.11 per share of O&M savings. While these measures help the company meet its 2015 financial targets, they are unsustainable and we do not plan to continue them in 2016. Utility interest expense decreased $2.4 million over the last 12 months with the redemption of $40 million of debentures without reissuance. For the year net income for gas storage improved mainly due to a reduction in operating expenses reflecting lower repair and power cost at our Gill Ranch facility. As well as permanent expense savings I previously mentioned. Despite improvement in the fourth quarter, gas storage annual operating revenues declined as a result of higher contracted storage prices in the first quarter of 2014. In addition interest expense increased reflecting the early redemption of the Gill Ranch note. Cash flow from operating activities declined $31 million compared to last year due to over $100 million of environmental insurance recoveries in 2014 offset in part by the decrease in cash flows from changes in deferred gas cost balance. Now I’d like to briefly mention two regulatory updates. In January 2016 we received an order from the OPUC resulting all open matters in our SRRM docket. The order confirmed the recovery of environmental cost eligible to Oregon rate payers under the SRRM and disallowed interest earned on the original $15 million charge from the February 2015 order. As a result we recognized a non-cash $3.3 million pretax charge in January 2016. Also we continually assess our business and economic environment to determine the need for future rate cases. Based on rate based growth since our last Oregon rate case in November 2012 and increases in operating expenses, we are evaluating the need to file in Oregon general rate case within the next 12 to 24 months. And a potential Washington rate case sometime thereafter. Moving to 2016 guidance, capital expenditures are expected to range from a $155 million to $175 million including approximately $15 million of capital expenditures associated with our North Mist expansion. For the five year period ending 2020, we estimate utility capital expenditures to range from $850 million to $950 million excluding any potential future gas reserve investments. This range also includes a $125 million of CAPEX for our North Mist expansion. At this time we expect cash savings from the extension of bonus depreciation to total approximately $90 million through 2019. We are evaluating the impact of this extension on the mix and profile of our investments. Our CAPEX range does not include any potential additional capital investment that may result from this evaluation. We currently do not anticipate the need to issue equity until 2018 with the completion of our North Mist expansion. In addition we are utilizing open market purchases for a dividend reinvestment program as well as certain share based compensation programs. The company initiated 2016 earnings guidance today in the range of $1.98 to $2.18 per share which includes the $3.3 million pretax or $0.07 after tax charge from the January 2016 order. Our adjusted guidance range excluding the charge is $2.05 to $2.25 per share. With that I’ll turn it back over to Gregg for his concluding remarks. Gregg S. Kantor Thanks Gregg, as we turned to 2016 we continued to focus on our regulatory agenda and on growing our company. On the regulatory front we were pleased to reach conclusion on the implementation of our environmental mechanism with the commission’s order this January. Although the additional charge in 2016 is disappointing, this was a complex docket and we believe the mechanism provides a good path forward for all stakeholders. This year we will continue working with the commission and other gas utilities in Oregon on the policy docket exploring commodity hedging. This includes what role gas reserves could play in a balanced natural gas supply portfolio. We’ve also been working with the Oregon Commission and stakeholders on a carbon solutions program under Oregon’s Greenhouse Gas Reduction Legislation. As we’ve discussed before, Senate Bill 844 allows the OPUC to incent natural gas utilities to undertake projects that will reduce emissions. Our first proposal was submitted in June and is designed to further the use of combined heat and power in Oregon. We filed our last briefs a few weeks ago and expect a decision from the commission in the next few months. On the customer growth side, we are working hard on expanding our multi -– our market share in the multi-family housing sector. As I mentioned, the Portland area housing market has seen an upturn, particularly in multi-family apartments. To further our efforts, we have created a cross-functional team to evaluate every aspect of the apartment rental market, a market that is typically underserved with natural gas. Results of a recent market study show that 80% of renters in Portland prefer natural gas entities. This shows a clear gap between what renters want and what’s available and we’ve begun developing a comprehensive marketing program targeting apartment developers. We view rental apartments as an untapped growth opportunity and a priority segment for us moving forward. Now let me give you a quick update on the potential expansion project at our underground storage facility in Mist, Oregon. As you know in 2014 we received approval from Portland General Electric to move forward with the committee and land acquisition work required for the expansion project. The project would provide no notice storage services to PGE’s natural gas power generating plants at Port Westward. It would include a new reservoir providing up to 2.5 billion cubic feet of available storage, an additional compressor station, and a new pipeline. Last April, we submitted an application to the Oregon Energy Facility Siting Council for an amendment to our existing Mist site certificate, a step required to support the expansion. In early October, we held an open-house with the local community near the expansion site and received positive feedback from attendees. And then on March 5th, just a few weeks ago, the Department of Energy published a proposed order. Public comment processed on that order will end on March 7, just a few weeks from now. If there are no challenges to proposed order through the comment process, we could receive the EFSC permit approval later this spring. And currently, we’re in the process of rebidding the EPC portion of the project. Following the approval of the permit and the rebidding process we expect to receive a notice to proceed from Portland General later this year. We continue targeting an in-service date during the 2018, 2019 winter season, a target that depends of course on the permitting process and construction schedule. And the current estimated cost of the project is approximately $125 million. Over many years Northwest Natural has demonstrated the careful planning essential to finding and retaining the talent necessary to drive success. Detailed succession plans are an integral part of the company’s business activities and this past year the benefits of that work were clearly visible. I would like to mention two key changes; first, in June of last year Greg Hazelton joined the management team as CFO and was also recently named Treasurer. And second, this past December, I announced my retirement at the end of 2016 and that David Anderson would be promoted to Chief Executive Officer effective to August 1. I will be working with the Board in Advisory role until the end of December. A smooth transition at the top is critical, but as important is developing the talent for succession in key positions across the organization, and that has been a long held commitment at Northwest Natural, one, that in my opinion, is the true mark of a Board and the management team with foresight. David is an excellent example of this talent. He is a strong leader and he brings great experience and a diverse skill set to the CEO position. I’m confident our company will be in good hands going forward. With that, thanks for joining us this morning and now I’ll open it up for questions. Question-and-Answer Session Operator We will now begin the question-and-answer session. [Operator Instructions]. Gregg S. Kantor Looks like people are ready for the weekend I guess. Operator Okay, well this concludes our question-and-answer session, I would like to turn the conference back over to Gregg Kantor, Chief Executive Officer for any closing remarks. Gregg S. Kantor Well thank you everyone. Thank you again for your interest in our company and for taking the time out this morning to listen in and have a great weekend. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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Great Plains Energy’s (GXP) CEO Terry Bassham on Q4 2015 Results – Earnings Call Transcript

Operator Good day, ladies and gentlemen, and welcome to the Great Plains Energy Incorporated Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to introduce your host for today’s conference, Ms. Lori Wright, Vice President of Investor Relations and Treasurer. Ma’am, you may begin. Lori Wright Thank you, operator and good morning. Welcome to Great Plains Energy’s Yearend 2015 earnings conference call. On our call today will be Terry Bassham, Chairman, President and Chief Executive Officer and Kevin Bryant, Senior Vice President, Finance and Strategy and Chief Financial Officer. Scott Heidtbrink, Executive Vice President and Chief Operating Officer of KCP&L is also with us this morning as our other members of our management team who will be available during the question-and-answer portion of today’s call. I must remind you of the inherent uncertainties in any forward-looking statements in our discussion this morning. Slide 2 and the disclosure in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations. I also want to remind everyone that we issued our earnings release and 2015 10-K after market closed yesterday. These items are available, along with today’s webcast slides and supplemental financial information regarding the fourth quarter and full year 2015 on the main page of our website at greatplainsenergy.com. Summarized on Slide 3 are the topics that will be covered in today’s presentation. Terry will provide a financial overview and an update of our legislative and regulatory priorities followed by a discussion of our strategic plan. Kevin will discuss our financial results as well as our long-term target. With that, I will now hand the call to Terry. Terry Bassham Thanks Lori, and good morning, everybody. I’ll start on Slide 5. Yesterday we announced fourth quarter and full year 2015 results, earnings for the quarter were up $0.15 per share compared to $0.12 per share in 2014. Full year earnings per share were $1.37 compared to $1.57 a year ago. Our results were within our communicated guidance range of $1.35 to $1.45. Our 2015 results reflect continued disciplined management of our business of solving the regulatory lag typical of our Missouri electric utility prior to new retail rates going into effect. Also weather when compared to normal negatively impacted earnings were approximately $0.09 for the year. During the quarter, we saw the impact of the recently concluded KCP&L Missouri and Kansas rate cases. We also put in place several new riders and trackers including a fuel recovery mechanism in Missouri, and both the transmission delivery charge rider and a CIPS/Cybersecurity tracker in Kansas. Kevin will discuss quarter and yearend-to-date drivers in his remarks Looking forward we’re introducing our 2016 earnings guidance range of $1.65 to $1.80 per share in our long-term expectations and commitment to drive continued dependable shareholder returns through a combination of earnings and dividend growth. As reflected in our press release last night, we’re targeting annualized earnings growth of 4.5% through 2020 of the year’s guidance range. This growth will be consistent with our regulatory frameworks and will be driven by targeted investment in customer and grid operations, continued environmental compliance and disciplined cost management. In addition, continued investment in national transmission and in a growing regional economy support our earnings growth rate. For the decade long investment cycle behind us, increased investment flexibility and improving cash flows, we’re in a stronger position to grow our dividend moving forward. This confidence is reflected in an increased long-term annualized dividend growth target of 5% to 7% through 2020 and a narrowed dividend payout ratio target of 60% to 70%. Turning now to Slide 6, as we reflect on 2015, there is no doubt the outcomes resulting from the traditional elements of our 2015 Missouri and Kansas KCP&L rate proceedings were constructive with virtually no disallowances and allowed returned consistent with regional presence. However, we continue to be disappointed by the inability to gain traction on some of the more responsive and commonly accepted regulatory reforms we’ve pursued in our Missouri case to better respond to the current environment in which we operate. Bottom line, there is also no doubt, the current regulatory construct that has been in place for the last century is in need of a refresh. As a result, we’re working with others to bring about comprehensive, performance-based statewide energy legislation in Missouri that will enable us [supporting] energy infrastructure investments and evolve our regulatory construct the one that meets the needs of all stakeholders. These reforms will provide robust customer protections, support modernization of the grid to address aging infrastructure, improve reliability enhance infrastructure security and facilitate the transition to a cleaner, more diverse mix of energy resources. We believe those common sense reforms will create and help retain thousands of jobs and will completely position Missouri for economic growth. Effectuating this topic of regulatory reform requires hard work, significant stakeholder education and rigorous coalition building. We continue to work with other Missouri utilities, our customers and other stakeholders to advocate for energy and policy advancements in order to bring longer term solutions that benefit customers and shareholders. We’ll keep you posted of these efforts in advance throughout the year. While we’re encouraged by the prospects for real regulatory reform, we continue to also plan to invest consistent with our regulatory frameworks and make active general rate case filings until such changes materialize. To that end, two days ago, we filed a general rate case at our GMO jurisdiction, requesting an increase of $59.3 million on a rate base of approximately $1.9 billion, using a return on equity of 9.9%. The primary drivers of this requested increase includes new infrastructure investments and continued increases in transmission cost and property taxes. New rates are anticipated to be effective early 2017 and summary of the key components of the case can be found in the appendix. We are also in the planning stages for the next round of rate cases at KCP&L. In Kansas we’re required to file an abbreviated rate case by November 2016 to true up our cost for the La Cygne environmental project. In Missouri, we’re evaluating the timing of our next case, which will likely be during the second half of 2016. As a reminder, the rate case process in Missouri is 11 months, while Kansas is approximately eight months. Finally as you know recently the U.S. Supreme Court granted a stay of the clean power plant pending judicial review of the rule. The stay will remain in effect pending Supreme Court review till such review is solved. While we’ve previously worked to improve the emission profile of our generation with nearly 75% of our co-fleet scrubbed, we continue to evaluate the implications of the recent court action. Investments we’ve made over the last several years have afforded us flexibility, response or combination of strategies, including optimization of the operation of our existing generation fleet and investments in new renewable resources and the shutdown of our older less efficient unit. We will continue to monitor these developments and we’ll balance the need to transition to a cleaner energy portfolio with managing the cost impact to our customers. Slide 7 highlights our simple and clear strategy as predicated and closely managing our existing business, promoting economic growth and improving our customer experience. We remain focused on operational excellence and meeting the changing needs of our customers. For the past several years we’ve implemented information technology projects that include an automated leader infrastructure upgrade, leader data management installation and an outage management system replacement. All are part of our broader strategic focus of providing top tier customer satisfaction and operational excellence. We recently initiated a project to replace our customer information system that will further enhance our interactions with our customers. The installation and operation of our Clean Charge Network one of the nation’s first major electric vehicle charging networks has made Kansas City one of the best places to own an electric vehicle and as you’ll hear from Kevin, economic activity in our region continues to improve. With that, I’ll now turn the call over to Kevin. Kevin Bryant Thank you, Terry and good morning, everyone. I’ll begin with an overview of our financial performance on Slide 9. As you can see, earnings for the fourth quarter were $0.15 per share compared with $0.12 a year ago. Full year earnings were $1.37 per share compared to $1.57 per share last year. As detailed on the slide the $0.03 increase for the quarter was driven by new KCP&L retail rates in Kansas and Missouri and an increase in other margins resulting from a change in customer mix, lower fuel and purchase power expenses that do not go through a fuel recovery mechanism and an increase in transmission cost recovered through a transmission recovery mechanism. An increase in weather normalized demand also contributed to the increase. These impacts were partially offset by milder weather, increased O&M, depreciation and amortization expense and lower AFUDC. For the full year, the $0.20 decrease was driven by mild weather, lower AFUDC, higher depreciation and amortization expense and a tax benefit impacting 2014 that did not reoccur in 2015. The decline in wholesale margins due to lower gas prices in KCP&L Missouri were a fuel cost recovery mechanism was implemented late in the year also contributed to the decline. However, we were pleased to implement the fuel recovery mechanism in the quarter as it minimizes margin risk moving forward. These negative impacts were partially offset by new retail rates and increase in weather normalized demand, lower fuel and purchase power cost and higher other margins. We continue our laser focus on managing cost. For the year O&M exclusive of items with direct revenue offset, declined approximately 1%. Over the last five years as a result of our continued commitment to cost management, annualized O&M growth exclusive of those same items increased less than 1% despite increased pressure from emerging regulatory grid security requirements such as CIPS and cyber security. Demand growth also remains a key focus area. 2015 weather normalized demand growth grew 0.4% net of our energy efficiency program, marking our third consecutive year of demand growth. We plan active role in supporting this growth through competitive retail rates, providing customers with Tier one service and by partnering with our communities to offer tools that promote the economic strength of the region. More globally we continue to be encouraged by the broader economic climate in the Kansas City region. Year-to-date December 2015, the unemployment rate in Kansas City was 3.8%, well below the national average of 4.8%. The residential real estate market remained strong. The number of single family residential real estate permit issued in 2015 increased 10% over 2014. Including multifamily permits, the total for 2015 increased 7% over the same year — same prior year period. Turning to Slide 10 as Terry mentioned, we are introducing our 2016 EPS guidance range of $1.65 to $1.08. The primary drivers of this range include a full year of new retail rates in our KCP&L Missouri and Kansas jurisdictions; weather normalized demand growth, consistent with recent trends of flat to 0.5% net of the estimated impact of our energy efficiency programs and continued discipline cost and capital management. While we will likely see a bit of an increase in O&M for the year due to our strong actions and performance in 2015, we continue our laser focus on managing our business in the current environment. And on the weather front, the year is off to a bit of a mild start, but we have the rest of the year ahead of us and are confident in our ability to manage the year. In the capital markets area supported by our strong NOL position, we have no activity planned in 2016 and have no equity needs for the foreseeable future. Turning to Slide 11, we are excited about our long term opportunity to grow our business while meeting the increasing needs of our customers. As we look forward, we’re targeting annualized earnings growth of 4% to 5% through 2020 off of this year’s guidance range of $1.65 to $1.08. This earnings growth will be driven by annualized rate base growth of 2% to 3% resulting from more targeted investment to empower customers and optimize our grid. I won’t belabor the point, but we will remain disciplined in our cost and capital management. As we look at our O&M profile over the next five years, we’ll be working hard to manage our annualized growth rates to be in line with or below the historical rate of inflation. And as evidenced by our modest ate base growth plan, we will be intentionally focusing our investment consistent with our regulatory frameworks for regulatory lag in the material ongoing challenge. In addition we will continue to develop our national transmission business and our regional economy is healthy and supports our earnings growth profile. At a higher level and as you can likely go in from our comments this morning, our focus remains on minimizing regulatory lag. As Terry mentioned, we are actively working with a broad stakeholder group towards regulatory policy change in Missouri and are committed to evolving the regulatory construct. That said, change is not always easy and we are proactively responding to the existing regulatory construct by filing more frequent rate case. Bottom line is that our team is actively working to eliminate the dips in earnings we have historically experienced and believe this is our current best tool along with tightly managing our investment activities to minimize lag. However there are limits to this strategy as Missouri is based on a historical test year and 11 month rate case process. So given our plans for more frequent and sometimes staggered rate cases over the next few years, we do not expect the smooth upward earnings trajectory through 2020 as a material regulatory reform, but we’ll continue to see material revenue steps when new rates in the various jurisdiction become effective, offsetting the lag from jurisdictions for new rate have not gone into effect. Slide 12 contains a list of considerations for 2017 through 2020 much of which we’ve covered in our presentation today. I’d also like to highlight one additional item. The expansion of bonus depreciation while dampening our rate base growth rate did increase future income tax benefits to nearly $1 billion at yearend 2015. As a result we do not anticipate paying significant cash income taxes through approximately 2024 that eliminates the need for additional equity in the foreseeable future. The details of our NOLs and tax credits can be found in the appendix. And again our expectations for demand growth moving forward are consistent with the recent trends and we will continue our focus on operational excellence and tight cost management that separates again and active management of the rate case calendar to minimize lag. As we wrap up on Slide 13 I’d note that with a decade long investment cycle behind us and increasing cash flexibility, we are in a much stronger position for the next decade. Our confidence drives our increased long-term annualized dividend growth target of 5% to 7% with emphasis towards the top side of the range. This strong dividend growth target will lead to a dividend payout ratio of 60% to 70% with the flexibility for potential share repurchases in the later years of the target window. We’re excited to deliver the opportunities in front of us and have a clear commitment to strengthen our utility infrastructure and regulatory frameworks to promote regional growth and in fact — and exceed customer expectations while delivering dependable shareholder returns. Thanks for your time this morning. We’re now happy to answer any questions you might have. Question-and-Answer Session Operator [Operator Instructions] And our first question comes from the line of Charles Fishman of Morningstar. Your line is now open please go ahead. Charles Fishman Thank you. Terry the partnering that you’re talking about doing with other stakeholders in Missouri, is that the [10.28 house 24.95]? Terry Bassham Yeah. That’s what I was talking about. Charles Fishman And then I’m sorry are you getting the feedback like I am on my phone? Terry Bassham I’m not, but you’re a little fuzzy but… Charles Fishman Okay/ I’m on a headset, but let me keep trying. All right, just one other question I guess, we had this bankrupt — there was that aluminum smelter in the Southern part of the state and my impression was they never saw a rate increase or a tracker, they never saw one they liked and they always voted against or at least had their legislative representative vote against it and they were pretty influential. With their bankruptcy, does that — it’s unfortunate certainly for the employees, for the region, but does that give this thing, the new legislation a higher profitability than we’ve seen in the past? Terry Bassham Yes, certainly. You’re talking about Noranda, which happen to be the largest user of electricity in the State of Missouri and is an Ameren customer and certainly that has been one of our challenges in the past and with — I would just say that with the current process, we’re working through, we’re partnering with them as well. They were Ameren obviously, but yeah I would say that they are with us in terms of a final solution that would help solve several issues and that is one of the things that’s different about this session than has been probably in the last four or five sessions. Charles Fishman So my impression is after a — they were very little ensuring if they’re out of the process, that sort of sucks the oxygen out of opposition? Terry Bassham And it more than out of the process, they’re actually in the process in support of what we’re trying to do here. So it is a definite change to what’s been happening in the past. Charles Fishman Okay. Thank you very much. That was it. Terry Bassham Thank you. Operator Thank you. And our next question comes from the line of Brian Russo of Ladenburg Thalmann. Your line is now open. Please go ahead. Brian Russo Hi good morning. Terry Bassham Good morning. Brian Russo Just on slide 11, you noticed rate case, long term growth rate in 2% to 3% but an EPS growth rate of 4% to 5%. How do you try to capture the incremental EPS growth versus the rate base growth? Kevin Bryant Yeah so Brian that comes in a couple of forms. One is continued cost management, but more importantly as you look at us towards the end of an investment cycle, our equity ratios for regulated purposes have dipped a bit. We expect for our cash position to create an opportunity for us to improve our equity ratios as we come out of that side of the build cycle and so that combination with solid management and little growth we think leads to a solid 4% to 5% earnings growth trajectory. Brian Russo Okay. Got it and just the midpoint of your 2016 guidance, it looks like it’s kind of in line below 8% earned ROE, is that accurate? Kevin Bryant Yeah, it’s about a 150 basis points of regulatory lag. Brian Russo Okay. And you mentioned potential share repurchase flexibility in the future, maybe you could just elaborate on that a little bit? Kevin Bryant Yeah that’s something we wanted to just to put out there publicly. As we get to the end of a five-year cycle with an improving cash flow and a moderating CapEx profile consistent with our regulatory construct, we think we’ll have cash flexibility and so amongst other things not only improving our equity ratio, but we think that there may be potential for share repurchases in the latter edge of that timeframe. So it’s something we’re going to make sure we talk to focus about. Obviously several years away, but something that could be utilization of cash. Brian Russo Okay. And then just lastly what’s next kind of on the legislative calendar that we should be looking out for on these senate bills and the house bill line of utility regulations? Terry Bassham Yeah this is Terry the next step would be senate hearings. So that will happen in the coming weeks and it will probably work through that process before the house picks up and does anything, but we would expect senate to have hearings in the coming weeks. Brian Russo Okay. Great, thank you. Terry Bassham Thank you. Operator Thank you. And our next question comes from the line of Gregg Orrill of Barclays. Your line is now open please go ahead. Gregg Orrill Yeah. Thank you. Do you have year-end rate base numbers for KCP&L jurisdictions? Kevin Bryant I don’t think we have that broken out in this presentation. It would still be consistent with what we were talking about in the third and fourth quarter as we finalized our cases last year that totaled to the $6.6 billion of rate base in total. Gregg Orrill Got it. Thank you. Operator Thank you. And our next question comes from the line of Paul Ridzon of Keybanc. Your line is now open please go ahead. Paul Ridzon Thanks. My questions have been answered. So I stood out. Thanks. Terry Bassham Thanks Paul. Operator Thank you. And our next question comes from the line of Chris Turnure of JPMorgan. Your line is now open. Please go ahead. Chris Turnure Okay. Good morning Terry and Kevin. I just wanted to get some color on the later years of your CapEx forecast. There is a lot of environmental spend in there and a couple other drivers that kind of increased it in the later years. How can we think about that plan changing at all in response to success in that legislative arena or failure there pardon me, and kind of the same question on the ability for you guys to do a little bit better or get more constructed outcomes in our current rate cases, rate case now and the one later this year? Terry Bassham Yeah. So this is Terry and I’ll let Kevin jump in here as well. The focus for us on this legislation is first and foremost earning our allowed return on our current investments and being able to fully earn the ROEs the commission awards. Certainly if we had more certainty around a process, we would be able to invest additional dollars on certain things, but that would be based on need and potentially additional other legislation in case issues. The CPP from that perspective remember doesn’t have any specific dollars in our CapEx yet and so we wouldn’t remove anything based on that ruling, but it could be additive if in fact we got a specific ruling. So there’s opportunities there as well. Kevin Bryant Yes and the only other thing I might add is that towards the back end of this CapEx disclosure and we’ve extended it out obviously an additional year, what you see in that environmental line it includes investment to comply with the Clean Water Act. So potentially for equipment associated with some of our river plants. Obviously we think we have a little bit of flexibility that CapEx has shifted out in the ’18, ’19, ’20 timeframe, but that forms the basis of the majority of the environmental CapEx in that timeframe. Chris Turnure Got you. And then on the dividend as we look towards November of this year it could potentially be in two rate cases at that time in Missouri depending on your strategy going forward. How can we think about your comfort level during an increase at the same level that you did last year and kind of keeping up within the payout ratio guidance if you are in fact fully speed to regulatory activity at that time? Kevin Bryant Yeah I think we’ve been clear and in fact have done year after year now for many years we’ve taken the position that a healthy utility with growing dividend is important for our state shareholders and all stakeholders and we’re not bothered by the fact that we might have a dividend increase fall within the time period. We’re also considering a rate case and we’ve had good response. Nobody has suggested that that’s not appropriate. So our guidance here obviously around the dividend recognizes the fact you just mentioned and when time comes, we’ll evaluate that with the Board, but the rate case wouldn’t stop us from doing the right thing. Chris Turnure Okay. Good to hear. Thanks. Kevin Bryant Thank you. Terry Bassham And if I might real quick, I think Gregg from Barclays your question I got my act together and got the answer. It’s about $4.7 billion of rate base at year end for KCP&L and Missouri. Hopefully, that answers the previous question. Operator [Operator Instructions] And our next question comes from the line of Andy Levi of Avon Capital. Your line is now open. Please go ahead. Andy Levi Hey, good morning, gentlemen. Terry Bassham Hey Andy. Kevin Bryant Hey Andy. Andy Levi Hey, just quick questions. There is a big background, look at that. So on the growth rate did you say if I heard correctly, that it’s not liner, that it is choppy or… Kevin Bryant That’s right Andy. We’re trying to remind folks that with historical test years and 11-month process, you’re still going to see dips in regulatory lag, which creates the need for rate cases. What our current plan contemplates is more frequent rate cases to smooth out those grips. But again, it’s not just going to be a smooth 4% to 5% growth from this point through 2020. We’re still going to have to manage that current regulatory process unless we get a change in the regulatory mechanism as Terry discussed. Andy Levi So how should we think about this, oh, I am sorry, were you going to say something Terri? Terry Bassham No. Andy Levi Oh, I am sorry, this background thing is… Terry Bassham Sorry about this. Go ahead. Andy Levi So just trying to understand, so we take your 2016 $1.73 I guess that has been deployed and then we grow that 4% to 5% off the $1.73 through 2020, which gives you another not sure which are accompanied and that’s where you plan to get, but in between that it could be choppy, but it could ultimately by 2020 that’s the number we should focus on that you’re trying to say? Kevin Bryant That’s right. And I wouldn’t say choppy, it just won’t be a straight line because for example now we’ve got our GMO case that we’re getting ready to file. We’ve got four years of lag built up at the GMO jurisdiction. So when those new rates come into effect next year we’ll see those new rates, but remember we will have ongoing lag from KCP&L Missouri primarily due to transmission expense and property tax. In the interim and as Terry mentioned, we’ll file a case likely targeting the second half of this year and then those new rates will come in sometime after that case is filed. So we’re trying to eliminate that choppy thing, but it’s not going to be a smooth straight line through 2020. Andy Levi Got it. Okay. Thank you guys. Kevin Bryant All right Andy. Thank you. Operator Thank you. And I am showing no further questions at this time. I would now like to turn the call over to Terry Bassham for closing remarks. Terry Bassham All right. Well thank you, everybody for joining the call. Thank you for your questions and obviously we’ll keep you updated along the way as things progress. Have a good day. Operator Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. 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Edison International (EIX) Theodore F. Craver, Jr. on Q4 2015 Results – Earnings Call Transcript

Operator Good afternoon and welcome to the Edison International Fourth Quarter 2015 Financial Teleconference. My name is Mary and I will be your operator today. Today’s call is being recorded. I would now like to turn the call over to Mr. Scott Cunningham, Vice President of Investor Relations. Mr. Cunningham, you may begin your conference. Scott S. Cunningham – Vice President-Investor Relations Thanks, Mary, and welcome, everyone. Our principal speakers today will be Chairman and Chief Executive Officer Ted Craver; and Executive Vice President and Chief Financial Officer Jim Scilacci. Also here are other members of the management team. Materials supporting today’s call are available at www.edisoninvestor.com. These include our Form 10-Q, Ted’s and Jim’s prepared remarks, and the presentation that accompanies Jim’s comments. Tomorrow afternoon, we will distribute our regular business update presentation. During this call, we will make forward-looking statements about the future outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectation. Important factors that could cause different results are set forth in our SEC filings. Please read these carefully. The presentation includes certain outlook assumptions, as well as reconciliation of non-GAAP measures to the nearest GAAP measure. During Q&A, please limit yourself to one question and one follow-up. I’ll now turn the call over to Ted. Theodore F. Craver, Jr. – Chairman, President & Chief Executive Officer Thank you, Scott, and good afternoon, everyone. In my remarks today, I will touch briefly on our 2015 performance and then focus on Southern California Edison’s and Edison Energy Group’s, long-term growth opportunity. Closing out one year and starting a new one is a natural time to reflect on some of the longer-term themes. Full year 2015 core earnings were $4.10 per share, $0.23 above the high end of our core earnings guidance range. We also introduced today our 2016 core earnings guidance range of $3.81 to $4.01 per share which reflects SCE’s strong rate base growth, a continuing focus on improvements in operational efficiency and ongoing energy efficiency incentives. We believe that SCE’s rate base is the best proxy for long-term earnings growth potential. As Jim will soon describe in more detail, we have updated our forecast of SCE’s rate base through 2017. Rate base for 2015 increased $300 million and our forecast for 2016 rate base also increased by $300 million. The rate base for 2017 increased by $100 million. It seems some investors have been expecting a substantial decline in rate base due to bonus depreciation, but the effect of bonus depreciation is less, and there are other offsets. Bonus depreciation did not have any significant impact on 2015. Impacts pick up somewhat in 2016 and 2017. Bonus depreciation impacts are more than offset by a higher rate base from our distribution pole loading program on which we earn a rate of return, as prescribed in SCE’s 2015 general rate case. Jim will provide a more fulsome explanation, but the bottom line is that we expect rate base to be slightly higher in 2017 than our previous forecast after taking into account the final general rate case decision and the full effect of bonus depreciation. Customers will see the benefits of SCE’s continuing efforts to reduce cost. Through these efforts, together with lower fuel and purchase power cost, the NEIL insurance settlement of our San Onofre claims and the 2015 GRC, customers will receive on average a reduction in 2016 rates of 8%. This is a significant benefit for our customers and something we are very pleased to deliver to them. SCE’s share of the $400 million NEIL settlement was $313 million. After legal expenses, 95% went to customers. This is another example of the benefits of the San Onofre settlement unanimously approved by the CPUC in 2014. The last major step in implementing the settlement will be resolution of our pending and arbitration case with Mitsubishi Heavy Industries. Hearings before the three-judge panel are expected this spring. We still expect a decision late this year. As we’ve said previously, we are under confidentiality provisions during the litigation process, so we don’t expect to have further updates unless there is some material development. The CPUC’s December decision on ex-parte communications completed its consideration of the matters of the SONGS OII. The challenges to the Commission’s approval of the settlement remain pending. We have no estimates on the timeframe to decide those challenges. In the meantime, we are focused on the safety commissioning of San Onofre. Based on our current decommissioning cost estimates, our decommissioning trust funds are adequately funded and not expected to require any further customer contributions. Our December dividend increase of $0.25, the second in as many years, equates to a 47% payout based on the midpoint of our 2016 SCE earnings guidance. We continue to see an excellent dividend growth opportunity as we grow SCE earnings and move up through our current targeted payout ratio of 45% to 55% of SCE’s earnings. I won’t attempt a prediction of future dividend increases, but I will describe our thinking. Our earnings growth is largely driven by long-term rate base growth. After depreciation, capital spending of approximately $4 billion a year will translate into rate base growing by roughly $2 billion a year. This would yield a 7% annual rate base growth potential for some years to come, and if we have higher annual CapEx, we will have a higher rate base growth rate. Additionally, moving the dividend payout ratio further up in our targeted 45% to 55% range only adds to the potential annual dividend growth rate. We believe that we are well-positioned for sustained growth in rate base and earnings at SCE. We have positioned SCE as a wires-focused business, consistent with our views on industry transformation and in alignment with California’s public policy objectives to move the state to a low carbon economy. We see more opportunities for growth than we do threats in the changes occurring in our industry. Recently, we have taken steps to further position Edison Energy Group to develop those opportunities. We are focused on finding those areas where customers’ needs are unmet, that match well with our competitive advantages, and that hold promise for scaling-up sufficiently. Edison Energy Group continues to expand into businesses that meet this profile, including distributed solar generation, energy services for commercial and industrial companies, providing new sources of water, and competitive transmission. Our SoCore Energy subsidiary added more commercial rooftop solar customers in 2015, and now has nearly 250 projects operating in 16 states. It has expanded beyond rooftop installations to ground-mounted projects serving both community solar and rural electric cooperatives. SoCore also piloted an innovative project for Cinemark Theaters that combined its rooftop solar panels with energy storage from Tesla Energy. We continue to build out an integrated energy services platform, which we call Edison Energy, to address the needs of commercial and industrial companies. Our market research has led us to conclude that the largest commercial and industrial companies with multi-state operations are underserved nationally in their energy needs and struggle to deal locally with many different utilities, tariffs and new technologies. We believe we possess several competitive advantages to succeed with customers in this new and quickly evolving power environment. Our roots are as developers, operators and investors in complex infrastructure. We have deep technical, commercial and regulatory experience and knowledge of the power system. Our brand and substantial size gives customers confidence in our ability to deliver and contrasts with the dizzying array of untested start-ups. Our platform was expanded through some recent smaller acquisitions in the area of energy engineering and in consulting, that was Eneractive Solutions; energy procurement advisory services, which was Delta Energy; and sourcing off-site renewable energy, which was Altenex. Edison Energy now counts one quarter of the Fortune 50 companies as clients, including General Motors, Microsoft, and Procter & Gamble. Next month, Edison Energy will launch marketing efforts to larger C&I companies, emphasizing its abilities as a comprehensive, integrated energy service solution provider. Today, these new businesses are small, even though we think the opportunities could be significant. Currently, the vast majority of our capital is dedicated to our core business, modernizing the electric grid at SCE and to moving up our dividend ratio, payout ratio closer to the industry norm. Our approach to these new businesses will be disciplined, focused on small initial investments to understand strategic fit, profit drivers, and scalability. We have allocated some capital to testing and building our new businesses, but it is currently only around 1% to 2% of the total capital deployed at Edison International. We are gaining confidence that there is indeed a market need for these new businesses and that they can be profitable. The major question is whether these businesses can be scaled up sufficiently to be significant to a company our size. If performance warrants and the opportunities continue to look sizeable, we are in a position to increase our commitment. We are encouraged but, ultimately, we will be driven by results. So, to summarize, our strategy has three themes. Theme one, operate with excellence, meaning, we operate our existing business with a focus on controlling costs and customer rates and improving service to our utility customers. Theme two, build the 21st century power network. This means we invest in our existing business and manage the unprecedented changes in policy and technology. And theme three is to expand our growth potential. We systematically explore new growth opportunities by making disciplined investments where industry changes are producing unmet customer need, where we believe Edison has competitive advantages and where scalable opportunities exist. Concentrating on these three strategic themes will allow us to remain relevant to our existing customers, produce higher than industry average growth in earnings and dividends, and provide the flexibility to adapt and grow in a climate of rapid change. So, that’s it for the big themes. Let me now turn the call over to Jim. Jim Scilacci – Chief Financial Officer & Executive Vice President Thanks, Ted. Good afternoon, everyone. My remarks will cover fourth quarter and full year results, our updated capital spending and rate base forecasts, and our 2016 earnings guidance. I’ll start with SCE’s fourth quarter operating results. Please turn to page 2 of the presentation. SCE’s fourth quarter 2015 earnings are $0.89 per share, down $0.20 per share from last year, but well ahead of the $0.66 per share implied by the midpoint of our 2015 earnings guidance. Looking at the year-over-year comparison, two items from last year stand out. First is the $0.15 per share income tax variance, as shown in the right table. As part of the 2015 general rate case decision, differences in tax repair benefits for 2015 through 2017 flow through the tax accounting memorandum account or TAMA and do not affect earnings. Second is last year’s $0.05 per share benefit from resolution of an income tax item from the 2012 GRC. This was recorded in revenues last year and is part of the $0.15 per share revenue variance. A key item, and something that was not included in our 2015 earnings guidance, is an $0.08 per share benefit from a new balancing account for SCE’s distribution pole inspection and replacement program. Let me provide some additional background. The 2015 GRC established a new balancing account to track costs to inspect distribution poles and to repair or replace them as needed. This is called the Pole Loading and Deteriorated Pole Balancing Account, or simply the pole loading balancing account. Balancing account allows SCE to true up from actual O&M and capital expenditures. For 2015, actual capital expenditures substantially exceeded amounts included in the GRC decision. Because of the lateness of the GRC decision, the Commission did not limit expenditures for 2015, but did limit expenditures for 2016 and 2017. Switching now from pole capital expenditures to rate base, the 2015 GRC decision included a pole loading rate base forecast of $296 million. Based on actual expenditures since the inception of the program, the 2015 rate base for poles increased to $625 million. As a result of the higher rate base, SCE recorded additional revenues through the pole loading balancing account to earn its authorized rate of return on the incremental rate base of $329 million. The additional $0.08 per share of earnings is based on both equity and debt returns at the blended authorized rate of 7.9%. The balancing account impact was finalized as part of our year-end reporting cycle and was not previously included in our earnings guidance. The balance of the revenue variance largely reflects the implementation of the 2015 GRC, which lowered authorized revenues, as expected. For the fourth quarter, O&M is a net positive $0.07 per share. O&M includes both the ex-parte penalty of $0.05 per share and $0.03 for additional severance costs as part of SCE’s ongoing operational excellence efforts. The balance of O&M benefits are from lower transmission, distribution and legal costs. Lower net financing costs are a benefit of $0.03 per share. The incremental tax benefits from 2014 that I mentioned drive the unfavorable tax comparison. One important item that was not a key earnings driver in the quarter is bonus depreciation from the 2015 tax law change. Bonus depreciation did reduce average rate base, but only by a nominal amount, or a net $31 million. The nominal impact is much less than our general statement that a 50% bonus extension could reduce rate base by $400 million each year. I’ve come to the conclusion that it’s very difficult to effectively estimate the impact of bonus extension until you do the detailed analysis. The fact is, there are second and third order effects that can occur making our general statement accurate only with a controlled set of assumptions. With this preamble, there are three primary factors that reduced the impact of bonus deprecation on 2015 versus our prior forecast. First, under normalization rules, bonus depreciation is pro-rated in the first year in which capital additions are estimated to be put into service. Second, certain 2015 capital additions relate to work that began in 2014 and are eligible under 2014 bonus depreciation and thus were included in our prior rate case forecast. Third, the shift in tax payments caused 2015 working cash to increase. For rate making purposes, working cash is a component of rate base. Later in my presentation, I will provide a complete reconciliation of rate base changes for 2015 through 2017. As part of the key earnings drivers, revenues and income taxes are lower due to the higher tax repair deductions recorded through the pole loading and TAMA accounts. The higher tax repair deductions in 2015 do not affect earnings and are not shown on the right side of the slide as they are netted out. The total impact for the quarter is $0.45 per share in lower revenues and income taxes. For the holding company, costs are unchanged at $0.01 per share. For SCE non-core items in the quarter include the previously announced $1.18 per share charge related to the write-down of the regulatory assets for incremental tax repair deductions for the 2012 through 2014 period. It also includes a $0.04 per share benefit from the NEIL insurance settlement and legal cost recoveries related to SONGS. Holding company non-core items include a $0.03 per share gain on the sale of Edison Capital’s affordable housing portfolio at year-end and a $0.01 per share related to accounting for income tax attributes related to SoCore’s tax equity financing. Discontinued operations include a $0.02 per share EME-related cost for changes in net liabilities for retirement plans and additional insurance recoveries. Page 15 has a detailed summary of all non-core items. Please turn to page 3. Full-year 2015 core earnings are $4.10 per share, down $0.49 from a year ago. SCE’s 2015 earnings largely reflect the impacts of the 2015 GRC decision, especially the treatment of excess tax repair deductions, together with the other fourth quarter key drivers I mentioned earlier. Excluding the tax repair deductions now tracked in the pole loading and TAMA accounts, CPUC jurisdictional revenue is down $0.39 per share while FERC revenue is up $0.14 per share. Among the key cost components, the favorable O&M trend relates largely to the positive fourth quarter factors discussed previously. The favorable net financing costs are mainly from higher AFUDC earnings that we have been reporting all year. The major driver of lower earnings this year is the loss of tax repair benefits. In 2014, we recognized $0.41 of tax repair benefits. In 2015, these benefits either flow through the pole loading or TAMA accounts without impacting earnings. Full-year holding company costs are $0.01 per share above last year due to higher income taxes and expenses. Please turn to page 4. This slide walks through the key differences between our 2015 core earnings of $4.10 per share versus the midpoint of our guidance of $3.82. First, you’ll see the $0.08 per share related to the $329 million increase in pole loading rate base I discussed earlier. The additional equity return is $0.05 and the debt and preferred return is $0.03 per share. O&M is favorable $0.08 per share due mainly to the factors I mentioned earlier. The other financing benefit is AFUDC at $0.01 per share. Taxes are the other driver due to the implementation of the TAMA account and clarification of treatment of tax items that would otherwise negatively impact earnings but now flow through this account. Holding company costs are at $0.05 per share positive variance due to higher income from Edison Capital and income tax benefits. Please turn to page 5. SCE’s capital spending forecast increased slightly, adding $300 million in 2016 and $100 million in 2017, as Ted has already mentioned. The 2016 change principally relates to an updated estimate for pole loading expenditures up to the cap provided in the 2015 GRC decision and for cumulative spending in 2016 and 2017. This incremental spend will flow into rate base as you will see in a minute. The 2017 increase relates to modest changes in the scope and timing of FERC transmission investments. SCE’s current forecast does not include any incremental spending on distribution resources plan activities. The forecast also excludes any energy storage investments or Phase 2 of the Charge Ready program. Please turn to page 6. A third major transmission project, the Mesa Substation, has been included in our capital spending forecasts for some time, but has advanced sufficiently through the regulatory approval process that we felt it appropriate to describe more fully. This is the replacement of a 220 kV substation with a 500 kV substation. It will provide additional transmission import capability, allowing greater flexibility in the siting of new generation and reducing the amount of new generation required to meet local reliability needs in the Western Los Angeles Basin. This is a Cal ISO approved project. Please turn to page seven. This page shows the increase in SCE’s rate base forecast that Ted mentioned. I will explain the changes in a moment. The two-year compound annual growth rate for both the Outlook and Range cases is 7%. With the complexity associated with the extension of bonus deprecation and the normal changes to our capital expenditures flowing into rate base, we felt it would be helpful to provide a more fulsome reconciliation of rate base changes. Please turn to page eight. For 2015, we ended the year with $329 million of additional rate base from pole loading capital expenditures. As I mentioned earlier, the extension of bonus for 2015 is lost in the rounding. We estimate the impact of bonus depreciation to be about $300 million in 2016 and $700 million in 2017 relative to our prior forecast. The incremental additions to rate base from a pole loading account activity is about $600 million in 2016 and about $700 million in 2017. In effect, the impact of bonus is offset by the change in the pole loading rate base. Net, net, net, relative to our prior forecast, rate base increases $300 million in 2016 and $100 million in 2017. Lastly, we plan to update our capital spending and rate base forecasts through 2020 when we file our next general rate case in early September. Please turn to page nine. Today, we introduced 2016 earnings guidance with a midpoint of $3.91 per share with a range of plus or minus $0.10 per share. For SCE, we start with the rate base forecast of $25.1 billion shown on page 7. The rate base math yields earnings of $3.81 per share. While a number of positive variance in 2015 may not recur in 2016, we do expect additional earnings contribution from the energy efficiency of $0.05 per share. We also anticipate incremental productivity and financing benefits of $0.17 per share. This implies earnings of $4.09 per share at SCE. Lastly, we deduct $0.18 per share for holding company costs with no range. In the past, I’ve talked about holding company costs of roughly $0.15 per year and, on our last call, we pointed out that the sale of Edison Capital would eliminate the earnings contribution this business provided. The $0.10 per share loss for 2015 included $0.06 of income from Edison Capital. The increase over 2015 relates primarily to higher financing costs. Please turn to page 10. The last slide reinforces our view that EIX has one of the better opportunities among large cap utilities for rate base, earnings, and dividend growth. Thanks, and I’ll now turn the call over to the operator to moderate the Q&A. Question-and-Answer Session Operator Thank you. Our first question coming from the line of Julien Dumoulin-Smith of UBS. Your line open. Julien Dumoulin-Smith – UBS Securities LLC Hi, good afternoon, and congratulations. Theodore F. Craver, Jr. – Chairman, President & Chief Executive Officer Thanks, Julien. Julien Dumoulin-Smith – UBS Securities LLC Great. So first, Ted, let’s start with your opening comments on the call at the services side of the business. I’d be curious, as you see that scaling, you’ve done some acquisitions here, what kind of earnings power could we’d be looking at over the years? What kind of contributions and when do you see that happening? Theodore F. Craver, Jr. – Chairman, President & Chief Executive Officer It’s a great question and words were chosen pretty carefully to indicate. At this point, we want to try to do more in the testing side, make sure that we actually think that we’ve got a business here that really makes sense and that is scalable. It’s that last part that I think we’re spending most of our time on now. Assuming it’s scalable and assuming we can make those kinds of investments that would really allow us to fully capture the opportunity, to be relevant to a company our size, we’ve generally thought that the suite of businesses on the Edison Energy side, so not just energy services stuff I spent a lot of my comments on, but really the whole group of companies there, this probably got to be, just as a general rule of thumb, I’d say it’s got to be somewhere in the 10% to be significant or meaningful to a company our size. So I think, we want to see steady progress in that direction. We want to see that these things are capable of actually scaling to that size. But assuming that things continue on in the path at least we see in these very early days, that’s the type of magnitude that we would be looking for. Julien Dumoulin-Smith – UBS Securities LLC Got it. Excellent. And turning to the numbers a little bit, just as a follow-up quickly, can you elaborate a little bit more, Jim, on the rate base offset here on 2015, just as you think about the number being supposedly less than you had initially supposed or at least thrown out there? What’s the exact accounting there? Jim Scilacci – Chief Financial Officer & Executive Vice President So, there’s a couple of things going on. Bonus depreciation did not have impact in 2015 because of the items that I ticked through. There’s a number of things that really offset it, the biggest piece being the proration bonus depreciation in the first year and the overlap of those that float from 2014 into 2015 that we had already accounted for. And the biggest thing here is the pole loading program. We picked up a little over $300 million of rate base from pole loading that was not included in our prior forecast that we included now based on our year-end review and that’s the biggest offset for 2015. And you can see bonus growing in 2016 and 2017 as you expect. It would be at 50% and it reaches up to $700 million impact by 2017. But really what’s happening in the pole loading program in a sense is offsetting the bonus depreciation and it gets up to – pole loading gets up to $700 million. And so, the only changes really going on are the small changes in and around what’s happening with FERC and a little bit of the CPUC. So, we do have an increase in rate base, ultimately through 2016 and 2017, but the bonus depreciation is offset by the pole loading program. So, page 8, if you don’t have it there, really kind of describes the full details of how rate base changed over this three-year period and I think it’s probably the most helpful tool. Julien Dumoulin-Smith – UBS Securities LLC Indeed. Thank you. Jim Scilacci – Chief Financial Officer & Executive Vice President All right, Julien. Operator Thank you. Our next question coming from the Jonathan Arnold of Deutsche Bank. Your line is open. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Yeah. Good afternoon, guys. Jim Scilacci – Chief Financial Officer & Executive Vice President Hey, Jonathan. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Just a quick one, follow-up on the pole loading. And I think you mentioned the year-end review, Jim. Can you just talk us through a little bit how that processed and it seems like you would have known about this when we can kind of met you at EEI, for example. So, I was just curious kind of how it sort of changed so much. Jim Scilacci – Chief Financial Officer & Executive Vice President It’s a darn good question. In going through the general rate case decision, there was some confusion over how it actually operate and it came after further review in discussion that we were picking up – there was no limit to capital expenditures from the inception of the program through 2015. And the actual final decision included, really for all intention purposes, an estimate of pole loading based on some preliminary work. And because we were able to true up for actual capital expenditures, that delta fell out when we went through and reviewed it in more detail. So, as you recall, as we were going through the guidance as we got into the third quarter, I think for all intention purposes, we are so focused on repair deductions in getting all that accounting right and understanding it, that we didn’t fully appreciate what was happening with pole loading, and so we picked it up as far as our fourth quarter accounting enclosure. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. Thanks for that. And then just on the $0.18 drag, the parent and other for 2016, would you – in terms of getting a sense of how much these other businesses are a drag on numbers today, obviously, hopefully, there’ll potentially be an opportunity at some point, how much of that $0.18 is associated with investments you’re making in early stage businesses? If you weren’t making them would be there… Jim Scilacci – Chief Financial Officer & Executive Vice President Yeah. No, it’s a good question. And what’s happened in the last couple of year, Edison Capital, the sell down on that portfolio has been masking some of the ongoing costs that are occurring at the holding company. And for all intents and purposes, the change, I mentioned in my comments that we’ve guided people that the holding company cost on an annual basis taking out Edison Capital had been running at about $0.15 and that we bumped that up to $0.18. And the delta is primarily financing cost, not Edison Energy. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. And do you see the Edison Energy costs kind of ticking higher before the net kind of comes – moves in the other direction, I guess? Jim Scilacci – Chief Financial Officer & Executive Vice President We’re going to grow the businesses, but we also expect earnings from the businesses, too. So that, we’ll have to see how it plays out going forward, and you can see we didn’t have growth year-over-year from Edison Energy and we acquired three businesses. They have ongoing earnings. So our goal ultimately would be a source of earnings not use. So we’ll have to see how things develop as we move down the road here. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. Great. And one other topic, we read recently that there is kind of a new resource planning regime coming at the PUC out of SB 350 requiring integrated resource plans. Could you talk a little bit about that and how you see it changing how you’ve operated, if at all? Theodore F. Craver, Jr. – Chairman, President & Chief Executive Officer I’d like to turn that question over to Pedro. Pedro J. Pizarro – President & Director, Southern California Edison Co. Hey, Jonathan. It’s Pedro Pizarro. How are you? Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Good. Thank you. Pedro J. Pizarro – President & Director, Southern California Edison Co. So, SB 350, the bill that implemented the 50% renewables by 2030 for the state along with some actions on electric transportation calls for an integrated resource planning process. It’s early days for that, Jonathan. It will work its way through the CPUC. Our view of that and view of the legislative intent in it is that it will help provide the PUC and state agencies a macro view, a planning perspective of how all the pieces fit together. We don’t see necessarily they’re significantly changing the nuts and bolts of the procurement process that we have because it’s a pretty well prescribed process for that. I think as we understand the intent, it’s more of a macro view on how the pieces will fit together across different kinds of renewable resources, transmission, et cetera, but in reality, the details will be worked out through the PUC process. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Any sense of when you would have to file (38:43) such a plan? Pedro J. Pizarro – President & Director, Southern California Edison Co. I don’t know, Jonathan. I know that that’s just beginning to work its way through the PUC. I believe there’s been some scoping work there. So, probably within a year or so will be the likely timeline. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Great, all right. Thanks a lot. Pedro J. Pizarro – President & Director, Southern California Edison Co. It’s not a next month kind of item. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Perfect. Got it. Thank you. Pedro J. Pizarro – President & Director, Southern California Edison Co. Sure. Operator Thank you. Our next question comes from the line of Michael Lapides of Goldman Sachs. Your line is open. Michael Lapides – Goldman Sachs & Co. Hey, guys. Congrats to a good year and start to 2016. One question for Jim, one for Ted. Jim, just curious the $0.17 at SoCal had in guidance for 2016 for what sounds like a combination of O&M management as well as some financing benefit, how should people think about the that longer-term, meaning after 2016, whether you’ll be able to keep that in 2017 or 2018, whether we should assume some of that continues in the 2017, but eventually that all kind of flows back to customers? Jim Scilacci – Chief Financial Officer & Executive Vice President You’re correct. In 2017, it’s the third year of the rate case cycle, the three-year rate case cycle, so you would expect us to hopefully retain some portion of that going forward. And 2018 is the general rate case, the test year. So the benefits we’ve derived over the prior rate case cycle flows to the customers. But again our goal would be to seek additional operational savings. There’s more work to be done and we’ll continue to focus on that, so we would hope to achieve some level of savings. I’m not going to predict what those might be. And the other piece here, the embedded cost of debt, we wouldn’t file a general – our cost of capital proceeding would be effective and we’d litigated in 2017 for 1/1/2018 effectiveness assuming we don’t extend it again. And so we would expect in 2018 that we would true up the embedded cost of debt at that time, unless we extend it again. So there is a… Michael Lapides – Goldman Sachs & Co. Got it…. Jim Scilacci – Chief Financial Officer & Executive Vice President …a number of the things that will be going up and down and we will just have to depend – our purpose here is to try to find additional savings, but a lot of it will toss back in 2018 as we reset our rates. Michael Lapides – Goldman Sachs & Co. Got it. And Ted, when you are kind of looking at it and at the distribution resource plan for the future, the different utilities have taken different tacks about how much they want to put out in the public domain or how much they want to put in front of the regulator, about what the spending levels could be. You’ve been much more robust in terms of kind of spending through 2017 and then spending from 2018 to 2020. How do you expect the regulatory process to play out and when do you expect to get some certainty and actually put some capital to work on this? Theodore F. Craver, Jr. – Chairman, President & Chief Executive Officer I think probably the short answer is, based on what reaction we’ve gotten so far on the distribution resources plan, it looks like it’s going to be probably more of a discussion in the 2018 to 2020 rate case. It’s possible some other things will move in there. I mean, we’ve had some things such as the Charge Ready program and a few of these, but I think the bulk of the discussion around what those expenditures for modernizing the grid would look like. And… Michael Lapides – Goldman Sachs & Co. So in other words, that spend in the 2015 to 2017 timeframe, is that spend you don’t actually expect to get approval to do the just a couple of hundred million dollar level? Theodore F. Craver, Jr. – Chairman, President & Chief Executive Officer Yeah. I’ve not seen a ready vehicle for being able to make any significant investments in the near term. So absent that, I think most of the discussion would be in the 2018 to 2020 period with the upcoming rate case. Michael Lapides – Goldman Sachs & Co. Got it. Thank you, guys. Much appreciated. Theodore F. Craver, Jr. – Chairman, President & Chief Executive Officer You’re welcome. Jim Scilacci – Chief Financial Officer & Executive Vice President Thanks, Michael. Operator Thank you. Our next question coming from Steve Fleishman of Wolfe Research. Your line is open. Steve Fleishman – Wolfe Research LLC Yeah. Hi, good afternoon, guys. Just, Ted, on the dividend commentary, just wanted to clarify, obviously it’s the same payout range of 45% to 55%. I think, the language you used was through the payout range and kind of I think you at some point even said targeting more over time toward the industry averages. Are you kind of implying that you’re now targeting at least the high end of this range and may be looking to raise the range over time? Theodore F. Craver, Jr. – Chairman, President & Chief Executive Officer Yeah. In probably, as Jim likes to say, my usual way trying to be clear, but vague. I guess I would – what I’m trying to point out are a couple of things. One, just the rate base mechanism that converts into earnings suggests to us this kind of 7-ish, 7% kind of a growth opportunity that would translate through to dividends, but we’re at the bottom end of the range based on the midpoint of the 2016 earnings guidance range that we just gave. Depending on where earnings actually come out depending on how we would look at moving our way through the 45% to 55%, we would kind of view that 7% as more of a floor than anything else. So that was the principal point that I was trying to insinuate in there. In terms of whether we’re trying to get to a specific point in the 45% to 55%, I clearly was not trying to give a specific point that we were targeting there. 45% to 55%, we feel, has been the appropriate range, given that we have a higher than industry average rate base growth and higher than industry average earnings growth rate. These things kind of ultimately balance together, but for the foreseeable future, we think we’ll have a – we’ll continue to have a higher than industry average rate base in earnings growth and so the 45% to 55% seems to still be about the right range. Steve Fleishman – Wolfe Research LLC Okay. Great. And then one other question on the productivity and financing savings. Should I assume this is the just ongoing efforts that you guys keep having to reduce costs in the business, if not kind of like one-time in nature in 2016? And thus, all else equal that should continue at least until we get to the next rate case? Jim Scilacci – Chief Financial Officer & Executive Vice President Yes. Steve Fleishman – Wolfe Research LLC Okay. Thank you. Jim Scilacci – Chief Financial Officer & Executive Vice President Thanks. Operator Thank you. Our next question coming from the line of Praful Mehta of Citigroup. Your line is open. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Thank you. Hi, guys. Jim Scilacci – Chief Financial Officer & Executive Vice President Good afternoon. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Good afternoon. So a quick question on growth rates and it’s good to see the 7% through 2017, I guess the importance of DRP is what I’m trying to get to from the 2018 timeframe. What I’m trying to figure out, what proportion, I guess, of your CapEx spend will be DRP related and is there any concern that that DRP component can get pushed out or delayed in terms of CapEx spend for the next cycle? Jim Scilacci – Chief Financial Officer & Executive Vice President It’s a darn good question. We’ve said repeatedly that we think the capital expenditures are going to be in that $4 billion plus or $4-ish billion range for the foreseeable future and all I can give you until we file our 2018 GRC is a sense that part of the component that could push the spending higher is DRP, but this year will be important – the balance of this year gathering from the PUC, what they’re thinking about the DRP we will include in our GRC an appropriate level. And there are some other things that are pluses and minuses. Ted mentioned it. I had it in my script. We’ve got the Charge Ready program. It’s flowing through. That’s on a separate track and we need to get through the Phase 1 before we can add the additional – potentially up to $300 million of capital expenditures for that program. I also said, we didn’t have any storage-related expenditures in there. So, there’s a number of things that are in the mix, and when you get into a GRC, you take a look at all the factors, you want to make sure that your rates are appropriate that you’re not putting up – pushing out the other edge for what you can afford from an affordability perspective. So, we’ll take all those things into consideration, and, of course, we’re going to pass back the benefits that we’ve realized in the current GRC cycle, and so we will have to see how all things work out. So it’s hard to predict beyond that 4-plus-ish range going forward until we actually file the GRC in September. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Got you. Thanks, Jim. And just quickly a much more detailed question, but one of the offsets, I guess, you mentioned the bonus depreciation with this working cash. Can you just give us some context of what it is, and how do you see that like in future years? Is that a component in like 2016, 2017 as well, and what’s the kind of size or order of magnitude of working cash? Jim Scilacci – Chief Financial Officer & Executive Vice President Well, that’s a long answer. But if I could simplify, as a company, we invest cash and it has to do with when you make ultimately payments and we have this part of the GRC, if you’d like to read all about it, there’s a section in the GRC filing that’s called the lead-lag study. And as a result of changes, as a result of bonus, it affected the lead-lag study and provided essentially more rate base for us. And I’m going to stop there, unless you want the gory details, which I’m going to lose my ability pretty quickly. But if you want more details, we’ll be happy to take you through it after the call and we’ll give you some more information. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Got you. That’ll be helpful. Thanks, Jim. I appreciate it. Jim Scilacci – Chief Financial Officer & Executive Vice President Okay. Operator Thank you. Our next question coming from the line of Ali Agha of SunTrust. Your line is open. Ali Agha – SunTrust Robinson Humphrey, Inc. Thank you. Good afternoon. Jim Scilacci – Chief Financial Officer & Executive Vice President Good afternoon, Ali. Ali Agha – SunTrust Robinson Humphrey, Inc. Hey, Jim or Ted, when you talk about this potential run-rate of CapEx $4 billion plus annually going forward. If you kind of reverse that with the cash flow benefits, I guess, from bonus depreciation, how do you look at your capacity to wrap up that CapEx before you run into, say, issuing new equity or before rate impacts get too big in your mindful customers? What kind of, I guess, cushion do you have, if you had the opportunity to go above $4 billion and still not have to issue equity and still keep the rate impact? What do you think is fairly reasonable? Jim Scilacci – Chief Financial Officer & Executive Vice President Well. It’s a tough question. That’s really a financially modeling one. And you have to take in other factors, too. You have to look at debt capacity at the utility, how much short-term debt you could use. You can look at debt capacity at the holding company and there are just factors that you’re balancing accounts, how it changes your cash. As you know, now we’re fairly over collected in our balancing accounts. So you have to look at all these things and then crank that through the model in terms of what you’re trying to do in terms of capital expenditures and then how you’re targeting rate base and then rate growth. So it’s a very complicated set of factors that the important thing the management team here will do between now and September is try to get all these dials just right and as we prepare for and file our 2018 GRC. So it’s not a satisfactory answer, but there is just so many components to go into it. Theodore F. Craver, Jr. – Chairman, President & Chief Executive Officer Hey, Ali, this is Ted. I think one piece that we have said at various points with investors is that the high-level and without getting lost too much in any specifics for one year versus another, things are in equilibrium, assuming around this 50% equity debt capital structure and around a 45% to 55% dividend payout. You’re about in equilibrium when you have long-term growth in the 6% to 8% range. You start getting much higher than that, it starts getting – you need other things to help out. And in the past, when we had an extremely high growth rate, when we were in that 10% to 12% we did have a number of unusual things. That’s where the global tax settlement deal really helped us out, bonus depreciation, and those types of things. Absent those, we would have really run too hot and we would have to issue equity. The other part that you mentioned, which I think is really worth of emphasizing again here, increasingly, I think the focus is to try to really hold the line on customer rates. If we look at the long-term trajectory, the history here, last 20 years, we’ve actually managed to keep customer rates at or below the rate of inflation, and we definitely want to at least continue that. If anything, we’d like to be able to have rates stay flat. But fundamentally, our goal is to try to keep it more around the rate of inflation or lower. If you get too hot a growth rate in here, especially given the relatively modest growth in energy consumption, you’re going to really put pressure on rates. So that becomes, as much as anything else, kind of the governor on what we want to have in the way of growth. So, customer rates, equity, long-term growth rate all of that kind of boils down to you want to focus to stay somewhere in this kind of 6% to 8% range. Get much hotter than that, you’re going to have issue equity or have pressure on rates. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay, very helpful. Second question, with regards to where we stand on SONGS, just to understand the process, now it appears we’re really waiting for the ALJ decision and that sets the clock with regards to the Commission or Board, et cetera. Is that it or are anything else pending or anything else you can point to for us to try to monitor this from our vantage point? Adam S. Umanoff – Executive Vice President & General Counsel This is Adam Umanoff, the General Counsel at EIX. There really isn’t anything else we can point you to. There is a request for rehearing and their petitions for modification that are pending. Until the ALJ rules on the petitions for modification, and that goes up to the Commission, and until the Commission rules on the request for rehearing, there is really no other action to consider. Ali Agha – SunTrust Robinson Humphrey, Inc. Understood. Thank you. Jim Scilacci – Chief Financial Officer & Executive Vice President Okay, Ali. Operator Thank you. Our next question coming from the line of Ashar Khan of Visium. Your line is open. Ashar Khan – Visium Asset Management LP Good afternoon and congrats. Jim, as I guess one thing which we are trying to fathom is everything is now trading on 2018, and if I’m correct, you mentioned you will provide the 2018 rate base in September when you file the rate case, but I just wanted to get a couple of things right. So, you said, if you spend about $4 billion, that adds to approximately like $2 billion of rate base and that should allow you to keep your 7% EPS CAGR or rate base CAGR going from 2017 to 2018. Is that correct, that’s what I heard? Jim Scilacci – Chief Financial Officer & Executive Vice President So, just a clarification, the 7% CAGR was from 2015 through 2017. Ashar Khan – Visium Asset Management LP Okay. Jim Scilacci – Chief Financial Officer & Executive Vice President Since we don’t have any other numbers out there, we’re just giving you the indication of $4 billion-ish is the appropriate level of capital expenditures going beyond 2017. Ashar Khan – Visium Asset Management LP But $4 billion is equal to $2 billion in rate base, right? That’s the correct math? Jim Scilacci – Chief Financial Officer & Executive Vice President It is a rough rule of thumb, yes. Ashar Khan – Visium Asset Management LP Okay. And secondly, you also alluded to, I just want to mention, if I got it right is that, you do expect the efficiency savings, the savings that you have like $0.17 right now, productivity and financing benefits, you don’t expect them to go to zero in 2018. You expect there to be some level, you don’t know what, probably not as high as $0.17, but there should be some level of those savings still there in the next rate cycle, is that fair? Jim Scilacci – Chief Financial Officer & Executive Vice President That would be our hope. Ashar Khan – Visium Asset Management LP Okay. Thank you. Operator Thank you. That was the last question. I will now turn the call back to Mr. Cunningham. Scott S. Cunningham – Vice President-Investor Relations Thanks very much, everyone, for participating. And don’t hesitate to call us, Investor Relations, if you have any follow-up questions. Thanks and good evening. Operator Thank you. And that concludes today’s conference. Thank you all for joining. 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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