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New Jersey Resources’ (NJR) CEO Larry Downes on Q1 2015 Results – Earnings Call Transcript

New Jersey Resources Corporation (NYSE: NJR ) Q1 2015 Earnings Conference Call February 04, 2015 10:00 AM ET Executives Dennis Puma – IR Larry Downes – Chairman and CEO Tom Massaro – Head of Marketing and Energy Efficiency Analysts Mark Barnett – Morningstar Michael Weinstein – UBS Operator Good day and welcome to the New Jersey Resources Corporation First Quarter 2015 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note that today’s event is being recorded. I would now like to turn the conference call over to Mr. Dennis Puma with Investor Relations, please go ahead, sir. Dennis Puma Thank you, Dan, and good morning everybody. Welcome to our fiscal 2015 first quarter conference call and webcast. I’m joined today by Larry Downes, our Chairman and CEO; Glenn Lockwood, our Chief Financial Officer, as well as other members of the senior management team. As you know, certain statements in our news release and in today’s call contain estimates and other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We wish to caution readers of our news release and listeners to this call that the assumptions forming the basis for forward-looking statements include many factors that are beyond NJR’s ability to control or estimate precisely which could cause results to materially differ from the Company’s expectations. A list of these items can be found, but is not limited to items in the forward-looking statements section of today’s news release filed on Form 8-K, and on our Form 10-K to be filed later today. Both of these items can be found at sec.gov. NJR does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. I’d also like to point out that there are slides accompanying today’s discussions which are available on our website and were also filed on our Form 8-K this morning. With that said, I’d like to turn the call over to our Chairman and CEO, Larry Downes. Larry? Larry Downes Thanks, Dennis. Good morning, everyone, and thank you for joining us today. For those of you who follow our company or have seen this morning’s press release, you know that fiscal 2015 is off to a strong start for New Jersey Resources. During my presentation this morning, I will be discussing our future and I’ll be making forward-looking statements. Our actual results will be affected by many factors including those that are listed on slide one. The complete list is included in our 10-K and I would ask you to please review them carefully. And also as noted on Slide 2, I’ll be referring to certain non-GAAP measures such as net financial earnings or NFE, as I am discussing our results. We believe that NFE provides a more complete understanding of our financial performance. However, NFE is not intended to be a substitute for GAAP. Our non-GAAP measures are disclosed more fully in Item 7 of our 10-K and I’d ask you to take the time to review those disclosures carefully. Then moving to Slide 3, this morning we announced net financial earnings of $55.1 million or $1.30 per share for the fiscal first quarter of 2015 and that compared with $39.9 million or $0.95 per share last year. Looking at our results, you can see that all of our primary business units performed well. Our excellent first fiscal quarter NFE performance was driven by strong net financial earnings from NJR Energy Services which is off to another good start in fiscal 2015, steady growth from our two regulated businesses, New Jersey Natural Gas and NJR Midstream, and a solid contribution from NJR Clean Energy ventures. On Slides 4 and 5, I’ll review the individual performances of our subsidiaries; results in New Jersey Natural Gas reflect the continued customer growth as well as increases in our BGSS Incentives and regulatory initiatives which include our accelerated infrastructure programs. NJR results were driven by periods of cold weather across the country during the first fiscal quarter that created short term increases in demand for natural gas as well as price volatility and those factors in turn generated higher net financial earnings. Turning to Slide 5, you can see the Clean Energy ventures had net financial earnings of $9 million versus $3.6 million last year. We can active one new grid-connected project in 145 residential systems those were placed into service. We also saw increased Solar Renewable Energy Certificates as SREC as we called them sales and prices. NJR Midstream and NFE of $2.1 million versus $1.4 million in the first quarter of last year. We saw higher revenues associated with firm sales at Steckman Ridge and Iroquois Pipeline. Turning to Slide 6, this morning we also affirmed our fiscal 2015 NFE guidance of a range of $2.90 to $3.10 per share as you can see, we currently expect our regulated businesses which include New Jersey Natural Gas and NJR Midstream to contribute between 65% and 80% of our fiscal 2015 net financial earnings. We also currently expect that NJR Energy Services will contribute to between 5% and 15% of our net financial earnings. This is a range that is generally consistent with their results in recent years prior to the outstanding performance that they had in fiscal 2014. Now, I want to spend just a few minutes summarizing on our strategy for fiscal 2015 and beyond. I think first and foremost New Jersey Natural gas will remain the primary driver of our strategy and our performance. It will continue to comprise the majority of our earnings, assets, people and capital investments. Our existing Midstream investments will also contribute to our regulated earnings. Through Clean Energy ventures, we will continue to provide our customers with cost efficient renewable electricity from our wind and solar investments. We are now focused on diversifying CEV’s earnings mainly through wind investments and through improving SREC fundamentals. And finally NJR Energy Services will continue to provide physical and producer natural gas services. As I previously noted NJNG will represent the majority of our future capital investments which is illustrated on slide 7. We expect to make significant investments in our utility infrastructure through fiscal 2017 and beyond. Our normal infrastructure investments including customer growth and system maintenance represent about $350 million or about 44% of NJNG’s total capital spending. We’re also focused on enhancing the safety, reliability and resiliency of our system; some of these programs such as SAFE which allows you to accelerate the replacement of our cast iron and bare steel are already contributing to earnings. Through our recently approved NJ RISE program we will invest over a $100 million for storm hardening and mitigation projects in the most storm prone areas of our service territory. Including SAVEGREEN we plan to invest over $250 million in initiatives through 2017 that will receive an immediate return. Our Southern Reliability Link will add a second inter-state pipeline connection to our service territory in Ocean County. The SRL is a part of our program to support safety, reliability and resiliency of our system. And our Liquefaction project in [indiscernible] New Jersey will give us the ability to liquefy pipeline gas for our peak day needs and create benefits for both our customers and our shareowners. The equipment manufacturing process for this facility is currently underway. And as you look at our planned capital spending for Clean Energy Ventures through 2017 you can see that that supports our portfolio diversification strategy. Moving to slide 8, New Jersey Natural Gas added 2,581 new customers in the first quarter of 2015, that represented an increase of 21% over last year, approximately 55% or 1,420 customers converted from other fuels primarily fuel oil. Our conversion market continues to be very warm as evidenced by 24% increase in the first quarter. In addition 1,161 of these new customers related to new construction that compared with 980 in the same period last year and represented a 19% increase. Taken together these new and conversion customers are expected to contribute about $4.2 million annually to New Jersey Natural Gas’ growth margin. And going forward we expect to add between 15,000 and 17,000 new customers over the next two years that would represent a new customer growth rate annually of about 1.6%. Now turning to slide 9, you can see our future customer growth potential which begins with our service areas population growth. As you can see on the graph on the upper left our service territory remains among the fastest growing in the state particularly in Ocean County which represents about half of our customer base. And as we look to the future we expect continued growth in Ocean County to be driven by favorable demographics. In fact in the 2013 20% of all new building permits issued in New Jersey were in Monmouth, Ocean and Morris County’s which represent the majority of our service territory. At the same time the price of natural gas remains very competitive compared with other energy sources and that is also supporting our efforts in the conversion market. So when we look at all of these factors we see excellent potential for both new construction and conversion market growth and over the long-term we see the potential for over 88,000 new construction customers and more than a 113,000 conversions. Moving to slide 10, you can see that working collaboratively with our regulators remains an essential element of our strategy. On this slide we’ve highlighted several of our key initiatives, our Basic Gas Supply Service or BGSS incentive programs are off to a solid start this fiscal year getting gross margin of $4.2 million in the quarter compared with $2.5 million last year. These programs I think as everyone knows also benefit our customers they have been in place now for more than 20 years and have saved customers more than $733 million since their inception back in 1992. Our conservation incentive program protects our — protects New Jersey Natural Gas company’s gross margin from declining usage and weather while encouraging customer conservation. Since its inception back in 2006 our customers saved nearly $322 million while reducing their usage. Our accelerated infrastructure programs have improved the safety, reliability and resiliency of our system, supported economic development and benefited both our customers and shareowners. And SAVEGREEN, our energy efficiency program provides grants and incentives to customers to install high efficiency equipment. We submitted a filing with the BPU in late December seeking extension of SAVEGREEN through June of 2018 and when we look at SAVEGREEN it has clearly supported both New Jersey’s energy efficiency and economic development goals and again has benefited both our customers and our shareowners. Turning to slide 11, you can see the positive impact of our customer growth and regulatory initiatives are currently expected to have on New Jersey Natural Gas Company’s gross margin over the next three years. Customer growth will remain the largest contributor to utility gross margin. We will also receive important contributions from SAVEGREEN and our BGSS incentive programs. Also at the end of the quarter we began serving the Red Oak generating station in Sayreville, New Jersey which is expected to contribute more than $2 million in additional utility gross margin annually; it will also provide an opportunity to generate additional BGSS incentive margin and customer credits. Moving to slide 12, as you can see from the chart, NJR Energy Services had a very strong quarter. Our team continues to do an excellent job meeting our customer needs during periods of extreme weather and has developed a portfolio of competitively priced storage and transportation assets. We remain positioned to take advantage of any market upside as we saw in fiscal 2014 and as I previously noted, we currently forecast NJRES contribution to net financial earnings will return to a range of 5% to 15% in fiscal 2015 to 2017 with possible upside depending upon the weather. Moving to Slide 13, we announced our latest Midstream investment last August, that’s the PennEast pipeline, which is designed to provide Marcellus supply to Northeast markets including New Jersey. Total capital expenditures are currently estimated at $1 billion and I think as everyone knows we have a 20% interest in PennEast. We pre-filed with the FERC last October. FERC staff has scheduled public meetings in New Jersey and Pennsylvania as part of their projects scoping process. FERC staff will then prepare an environmental impact statement and although we were early in the process we remain on track for commencement of commercial operations in late calendar 2017. Turning to Clean Energy ventures on Slide 14, we continue to build out our inventory of solar projects while placing more wind assets in service and as I said earlier, our strategy remains focused on the diversification of our investment portfolio. We have built a strong portfolio in our New Jersey based solar programs including both net-metered projects in commercial and residential markets as well as large scale wholesale solar grid projects. During the quarter, we completed a 10 megawatt ground-mounted grid-connected system in Howell, New Jersey. And as of the end of the quarter, we had three other projects on the construction all of which should be completed in fiscal 2015. On the residential side, we are now the third largest solar provider in New Jersey through our very successful Sunlight Advantage program. Over the last year we’ve made steady progress on our portfolio diversification with onshore wind with projects located in Montana, Iowa and Kansas. By the end of 2015, we expect to have approximately 40% of our distributed power portfolio invested in wind projects. Wind assets now (converse) [ph] portfolio as Carroll Area our second wind project came online last week and we currently expect to have almost 80 megawatts of installed wind capacity by the end of 2015. On Slide 15, you can see the positive impact at declining solar capacity additions as well as the annual increase in New Jersey’s renewal portfolio standards are having on our SREC prices. Recently SREC prices have moved over $200 and we expect the favorable SREC market fundamentals should continue to support higher prices. As we look to fiscal 2017, we currently expect that the majority of CEV’s earnings will come from a higher number of SRECs being generated from our solar portfolio, higher SREC prices and returns on our wind investments. We continue to expect between 10% and 20% of our total NFE to come from Clean Energy ventures. So on Slide 16, I would like to conclude with the slide that we introduced at our Investor Conference last October and as you can see it summarizes our key initiatives through fiscal 2018. These initiatives are expected to drive our objectives of delivering 5% to 9% net financial earnings growth and 6% to 8% dividend growth annually. So to summarize, our growth plan through fiscal 2018 is based upon strong customer growth, infrastructure investments and regulatory initiatives that will benefit both our customers and our shareowners at New Jersey Natural Gas. We will be taking advantage of expected natural gas demand and price volatility in NJRES while providing producer and asset management service, we’ll diversify CEV’s distributed power portfolio combined with improving SREC market fundamentals which should provide more steady income streams and we plan on expanding our mid-stream strategy including PennEast. So I think as you can see from all these fundamentals, our outlook remain strong and provides the opportunity for future growth. But as I close this morning as always, I want to thank our more than 950 employees for their continued dedication and hard work, what everything that they do every single day we would not have achieved the excellent results that we reported to you this morning. They remain a foundation of our company and I am grateful for what they do every single day. And with that, now we would be happy to take your questions and comments. Thanks. Question-and-Answer Session Operator We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Mark Barnett of Morningstar. Please go ahead. Mark Barnett Just a couple of quick questions on my end, first the (Redo) [ph] project; you’re referring to the supply agreement that was approved at the end of 2013 where there was a gas plant, yes? Larry Downes Yes. Mark Barnett Okay so this margin is just the gas supply margin and there was some sort of a margin sharing agreement on that as well? Larry Downes If there are additional BGSS credits they would be subject to that margin sharing agreement. Mark Barnett Okay and then when do you expect to hear about expanding SAVEGREEN and can you me remind if you asked to upsize the program or we’re just looking at kind of a similar track? Larry Downes Tom Massaro who heads up our Marketing and Energy Efficiency Area will answer that question. Tom? Tom Massaro We expect to hear a resolution to that, a settlement of that by the end of June, so we’re looking for a continuation of the current programs, so we file for an extension of pretty much what we have in place with very minor modifications but the spending levels would remain the same for the three year period that we petitioned for. Operator Our next question comes from Michael Weinstein of UBS. Please go ahead. Michael Weinstein Great first quarter, just wondering if you could talk a little bit about the possibilities and things that you have seen about opportunities that might be present for monetizing the SREC portfolio or perhaps even securitizing at some point. I know that it’s a pretty thin market for bar transactions but just wondering if you could just talk about that for a minute. Larry Downes Sure, Mike. We currently as you point out it’s still fairly (to work) [ph] with market (if anything) [ph] really long-term as far as hedging or that type of financial strategy. We currently as you can talk them out I think the fundamentals should provide continued strength in that price. And our current strategy is to generate and build our portfolio and part of the growth and the whole strategy of diversifying from their reliance clients on ITC is counting on much higher SREC sales from our portfolio down the road both because of volume and price. Operator Our next question comes from [indiscernible] Asset Management. Please go ahead. Unidentified Analyst Good morning and congratulations on a great quarter. Given the strength we saw this quarter in the energy services business do we expect that we can perhaps be on the upper end of the guidance range or the 5% to 15%? Larry Downes If our philosophy tweak at a whole winter is (upon us) [ph] before we officially update guidance but obviously we’re off to a good start. Unidentified Analyst And can you just provide some clarity on the low natural gas price and is this positive for the business, are you guys seeing additional opportunities from the volatility? Unidentified Company Representative Well it’s good for our utility and helps keep prices low for customers obviously that helps the whole strategy and working with regulators on additional initiatives. And in the energy services environment, again we don’t take price directional risk if you will in our strategy we hedge any commodity that we own. But when there are pockets of cold weather that we’ve seen this winter we have seen some nice spikes in short-term prices that our team can take advantage of. Unidentified Company Representative The only thing that I would add is that the low gas price certainly encourages demand and as our supply grows in the U.S that demand should grow as well, so it should provide for more opportunities in the energy services business [technical difficulty] services. Operator [Operator Instructions]. At this time I see no further questions. I would like to turn the conference back over to Dennis Puma for any closing remarks. Dennis Puma Okay. Thank you, Dan. I want to thank everybody for joining us today. As a reminder a recording of this call’s available for replay on our website. 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Atmos Energy’s (ATO) CEO Kim Cocklin on Q1 2015 Results – Earnings Call Transcript

Atmos Energy Corporation (NYSE: ATO ) Q1 2015 Earnings Conference Call February 04, 2015 08:00 a.m. ET Executives Susan Giles – Vice President of Investor Relations Kim Cocklin – Chief Executive Officer, President and Director Bret Eckert – Chief Financial Officer and Senior Vice President Analysts Christopher Turnure – JP Morgan Spencer Joyce – Hilliard Lyons Andy Levi – Avon Capital Advisors Operator Greetings, and welcome to the Atmos Energy First Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ms. Susan Giles, Vice President of Investor Relations for Atmos Energy. Thank you. Please begin. Susan Giles Thank you, Melissa, and good morning, everyone. Thank you all for joining us. Our speakers this morning are Kim Cocklin, President and CEO; and Bret Eckert, Senior Vice President and CFO. There are also other members of our leadership team here to assist with questions as needed. Our earnings release and conference call slide presentation are available on our website. To access these materials, please visit our website at atmosenergy.com. We will refer to just a few of the slides during this live call, but we’ll take questions on any of them at the end of our prepared remarks. Additionally the company’s Form 10-Q was filed last night and is also available on our website. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Please see Slide 17 for more information regarding the risks and uncertainties we consider in making these forward-looking statements and where to go to get more information on such risks and uncertainties. Now I’d like to turn the call over to Kim Cocklin. Kim Cocklin Thank you very much, Susan, and good morning to everyone. We certainly appreciate you joining us and your interest in Atmos Energy and congratulations to anybody that is a New England Patriots fan. Next year is the Cowboys year again. Yesterday we did report first quarter consolidated net income of $98 million or $0.96 per diluted share and after excluding the unrealized margins, net income was $93 million or $0.91 per diluted share. The regulated operations drove substantially all of our quarter-over-quarter growth. These operations are driven by very focused rate and regulatory strategy, which render stable and predictable earnings. The rate relief for our regulated distribution and pipeline operations combined generated about $32 million of incremental margin in our first quarter of fiscal ’15. Our liquidity and financial position remained very strong. In October you will recall we issued $500 million of senior notes at a rate of 4.125%, replacing $500 million of senior notes with a rate of 4.95%, and our debt-to-capital ratio was 49.5% at December 31 compared with 54.2% one year ago. Yesterday at our board meeting our board of directors declared our 125th consecutive quarterly cash dividend. The indicated annual dividend rate for fiscal ’15 is $1.56, and then last month we announced the appointment of Mike Haefner as Executive Vice President. This allows us the opportunity to strengthen the bench within the organization as Mike will become more involved in managing the operations of the company and the appointment also affords me the luxury and time to focus on building shareholder value, devoting more time to existing and potential investors and to continue to promote the exceptional value proposition of Atmos Energy. Our CFO, Bret Eckert, is going to now review our financial results in greater detail. Bret? Bret Eckert Thanks Kim, and good morning, everyone. If you follow me on Slide 2, as Kim mentioned reported net income for the quarter was $98 million or $0.96 per diluted share compared with $87 million or $0.95 one year ago. After excluding unrealized margins in both periods net income was $93 million or $0.91 per diluted share, compared with $81 million or $0.88 per share last year. We experienced business as usual in the first quarter of fiscal 2015. With return to more normal weather conditions during the quarter, spending levels for maintenance and capital activities were more in line with expectation compared to last year. We continue to execute on our long-term strategy of enhancing the safety and the reliability of our infrastructure coupled with constructive regulation across our service areas. Turning now to Slide 3 quarter-over-quarter gross profit in our regulated distribution segment increased by about $25 million. $19 million of the increase is the result of rate outcomes received during fiscal 2014 primarily in Texas and Kentucky. We also experienced a 13% increase in transportation volumes in the current quarter versus last year’s quarter primarily due to increased economic activity in our West Texas and Kentucky/Mid-States division, which added about $2 million of incremental gross profit. Service fee revenues were up quarter-over-quarter by about $2 million and was largely driven by increased customer reconnection activities following our fiscal 2014 customer collection efforts. These increases were partially offset by lower margins resulting to a return to more normal weather conditions during the quarter. Weather during the current quarter was slightly colder than normal and was 14% warmer than the prior year quarter. Therefore, although we experienced a 12% decrease in sales volume gross profit declined by just $2 million or less than 1%. This demonstrates how our weather normalization mechanisms insulate both the company and our customers during periods of atypical weather. Turning to Slide 4, our regulated pipeline generated over $12 million of incremental margin quarter-over-quarter primarily as the result of $12.5 million increase in rates from the approved 2014 GRIP filings. APT experienced an increase in third-party transportation volumes, transportation rates and pipeline demand fees and that generated about $3 million of additional revenue. However, these increases were partially offset by declines in other third-party ancillary services of blending, [Indiscernible] treating and storage of about $1 million, and as a reminder the prior year quarter included a non-recurring $2 million benefit associated with the renewal of APT’s annual adjustment mechanism. Turning now to our non-regulated segment and you may want to turn to Slide 12. Gross profit decreased about $2.5 million in our non-regulated segment due to a decrease in unrealized margins quarter-over-quarter. Realized margins for gas delivery and related services decreased $1.7 million, marginally due to a decrease in gas delivery per unit margins to $0.10 per MCF from $0.12 a year ago, and a 2% decrease in consolidated sales volumes. The decrease in both per unit margins and consolidated sales volumes reflects the impact of warmer weather during the current quarter compared to last year’s quarter. Additionally, increased transportation cost adversely impacted per unit margins. offsetting the decrease in delivered gas margins was a $2.2 million increase in other realized margins, primarily due to a reduction in third-party storage fees and the timing and magnitude of settled financial positions quarter-over-quarter. Turning briefly to the expense side of the income statement. O&M increased by almost $3 million quarter-over-quarter, mainly due to higher labor and benefits expense and increased pipeline maintenance spending. Offsetting these increases was a reductions in legal expenses. As expected interest expense decreased about $2 million quarter-over-quarter due to the replacing of the $500 million of ten-year debt at an interest rate of 4.95% with $500 million of 30-year debt at an interest rate of 4.125%. Details about our capital spending are presented on Slide 5. As you can see CapEx increased almost $81 million in the first quarter compared to one year ago. Spending in our regulated pipeline segment increased by almost $42 million due to the enhancement and fortification of the Bethel and TriCities storage field. We are drilling horizontal wells to improve the storage capabilities of the TriCities facility and installing pipelines to connect the [Indiscernible] Salt Dome Bethel storage to TriCities to better utilize the combined compression capabilities of the storage facilities and to better meet peak day requirements at the Mid-Tex and other LDC customers. Spending in the regulated distribution segment increased to almost $39 million primarily due to our continued focus on the safety and reliability of our system. You may recall our construction crews were sidelined for a portion of December 2013 due to the wintry weather, which also contributed to the increase in spending in the current quarter compared to the prior year quarter. Moving now to our earnings guidance for fiscal 2015 and you may want to turn to Slide 14. We expect fiscal 2015 earnings per share to be in the previously announced range of $2.90 to $3.05 per diluted share, excluding unrealized margins at September 30, 2015. Details on this slide are the expected contributions from our regulated and non-regulated operations, as well as selective expenses for the year none of which has changed since our year-end earnings call in early November. We expect the continued execution of our infrastructure investment strategy coupled with constructive regulation to be the primary driver for this year’s results. Looking on Slide 24, we anticipate annual operating income increases of $105 million to $125 million from approved rate outcomes in the year. Looking now on Slide 15, our capital budget range has not changed and remains between $900 million and $1 billion for fiscal 2015. Thank you for your time and now, I’ll hand the call back over to Kim. Kim Cocklin Thank you, Bret. Exceptional report and solid earnings report for the fiscal first quarter of ’15. Regulated rate relief does remain the primary driver of our financial performance and through the first quarter of ’15 rate outcomes and incremental deferrals have provided annual operating increases of about $6 million. Additionally yesterday we settled the Mississippi stable rate filing, which will provide an increase in annual operating income of $4.4 million. Other rate actions year-to-date that are filed and pending total about $18 million of annual operating increases and the more significant filings include the Tennessee rate case seeking an increase of about $6 million, the rate review mechanism for the West Texas cities seeking an increase of about $5 million and the Mid-Tex rate review mechanism for the city of Dallas, which is requesting about $7 million. We do expect an additional 10 to 12 filings in fiscal ’15 requesting between $80 million and $90 million of additional increases to operating income and you can see those details on slides 7 through 11 in the deck that was provided. Our earnings are straightforward with the business model of delivering safe and reliable natural gas in the States we serve are companies totally domestic with no direct exposure to risk associated with foreign currency or unstable economies. Outside the United States, Atmos Energy and our regulated distribution customers are significant beneficiaries of the following energy prices. We are able to pass through these lower natural gas prices to our customers and this has provided us the continued opportunity to proactively upgrade our system as we strive to be the safest gas utility in the nation, while keeping customers’ bills affordable. And assuming normal weather and pricing conditions we do expect through at least fiscal 2018 that our customer bills will be flat to lower than the average bill that they have incurred for most of the last 10 years. As a result our customers will be able to affordably benefit from a much safer and more reliable system as we continue to invest, and as Bret said these quarter results really are a result of business as usual for us. Our earnings report should come as no surprise as we have continuously communicated our growth through investment – in infrastructure investment. We remain dedicated to this strategy and remain focused on spending between $900 million to $1.1 billion of capital annually through fiscal 2018 to enhance the safety and reliability of our system. The enhanced value of the rate base is expected to generate earnings per share growth of 6% to 8% through fiscal 2018. We thank you very much for your time and now we will open up the call for your questions. Melissa? Question-and-Answer Session Operator [Operator Instructions] Our first question comes from the line of Brian Russo with Ladenburg Thalmann. Please proceed with your question. Brian Russo Hi, good morning. Kim Cocklin Good morning. Brian Russo Just noticed the debt-to-cap ratio now at 49.5% up from 46%, and I noticed the short-term debt balance up meaningfully at $550 million, just kind of curious when you might term that out or kind of where you see the debt-to-cap ratio kind of play out towards the end of 2015? Bret Eckert Brian this is Bret Eckert, the debt-to-cap ratio that you saw move obviously is through the growth of the short-term [debt balance]. We use that to fund seasonal gas purchases, but you are always going to see it spike when you get to the end of our first fiscal quarter and then those balances tend to come down as you come out of the spring and into the summer. So last year at the same time there was about $690 million of short-term debt outstanding and so it is lower than last year, but it really is just the ebb and flow of gas purchases. Brian Russo Okay, got it and with the first quarter now behind you are – any sense of where you might fall within that $105 million to $125 million rate revenue range that you are forecasting for ’15? Bret Eckert No, we – we still remain confident we’re going to fall within the $105 million to $125 million range based on what we have seen so far this year. Brian Russo Okay, and then just with the decline in oil and expected impacts to the Texas economy can you just talk about any impact if at all to your Texas based regulated operations? Kim Cocklin Brian this is Kim, there is really as we have said our significant beneficiary of the falling oil prices are all of our customers and consequently it gives them much more discretionary income as their utility bills continues to fall and it has an immediate benefit primarily to our the uncollectibles or the [Indiscernible] account balance as well is reduced as a result of the reduced oil price or gas prices and oil prices. So – Brian Russo No, I noticed an increase in transportation revenues, is that tied to kind of the energy industry or is that separate from that? Kim Cocklin It is separate from that, I mean, we have, traditional customers commercial and industrial customers and we are picking up additional loads as some of the economies continue to come back that we have been serving primarily because of the reduction in oil and gas prices as part of their process for their manufacture of the products that they are manufacturing. Brian Russo Okay understood, and then lastly if you annualize your first quarter ’15 O&M it is tracking below 495 million to 515 million assumption in your guidance, I’m just curious is there any kind of seasonality around that O&M, where would be higher in subsequent quarters? Kim Cocklin Well, you always have the weather to contend with in our first fiscal quarter Brian, and so we still feel confident in the 495 million to 515 million O&M range that we have put out, but you will see if you look back at the first quarter last year O&M was clearly lower, but we had such wintry weather at the time that it was difficult to get out and get things completed. So, I think you still will find us falling in the range disclosed. Brian Russo Okay, great. Thank you very much. Kim Cocklin Thank you. Operator Thank you. Our next question comes from the line of Spencer Joyce with Hilliard Lyons. Please proceed with your question. Spencer Joyce Good morning folks. Great quarter. Kim Cocklin Hi, Spencer, thank you. Thank you very much. Spencer Joyce One question here kind of in the [Indiscernible] have you all noted the potential size of this year’s GRIP filing for the pipeline segments? Bret Eckert Well, Spencer, the teams obviously are in the process of putting that filing together, but it is going to fall within the range that is driving the 105 million to 125 million of annual increases that we disclosed. Spencer Joyce Okay, great, great. Fair enough, and from a filing standpoint we are still looking at a filing on that this month sometime? Bret Eckert That is correct. Spencer Joyce Okay. finally and you all have sort of have touched on this a little bit throughout the call, can you just spend a little bit more time explaining to us the impact to you all of the low gas prices, I know it is pretty easy on the retail side to understand the falling customer bills and the ability for you all to perhaps do some extra infrastructure on the retail side, but particularly on the pipeline segment is there a risk that perhaps some contraction on the industrial growth could either hamper growth or perhaps even drive a decline there, just hoping to get a little better handle on what the falling energy prices could do there? Kim Cocklin No, they will not impact the pipeline operations or the expected assumptions we have around the margins and the income associated with that. Primarily, we have fixed contracts on sort of a pretty good term and they are designed on the straight fixed variable basis so they are not tied to throughput. We are not experiencing any reduction in throughput on the pipeline system either, I mean, we are continuing to see although they are laying down rigs in many of the production areas, they are going back in on the wells that they’re currently producing and doing some secondary and territory recovery. Mechanisms to continue to increase the production, so we looked at that and we see no threat to the pipeline operations through what we consider the near and the midterm for sure. Spencer Joyce Okay, fantastic. That’s all I had, nice quarter. Kim Cocklin Thank you very much, Spencer. Operator [Operator Instructions] Our next question comes from the line of Joe Zhou with Avon Capital Advisors, please proceed with your question. Andy Levi Hi, it’s Andy Levi, how are you? Kim Cocklin Hi, Andy, how are you? Andy Levi I am alright. Just a few questions. Just on bonus depreciation and also on pension/discount rates, I guess, since your Analyst Day and since you gave guidance, the year ended in bonus appreciation was extended. So, I was just wondering if that has any effect on the numbers that you had given us and then also as far as pensions and mortality rates and things like that whether that has any change there? Kim Cocklin No. No, on both counts Andy, both the bonus appreciation where we thought that was coming out, it doesn’t really impact the income statement more of a cash flow item and from the discount rates there, we are in-line with what we expected coming into the year. Andy Levi Okay and just remind us pension wise kind of where you are as far as what percentage is funded? Kim Cocklin It’s over 90% on a pre-map 21 basis and map 21 basis higher than that. I don’t have the exact percentages, I think Susan, we could look at that but its north of 90%. Andy Levi Okay, thank you. And then, one last question. Just a little bit of that happening on the electric side, it’s happened on the gas side already but just your thoughts on, I guess, in Texas it probably won’t make any sense, but in some of your other jurisdictions on rate basing, net gas prices are low right now? Kim Cocklin You are talking about like regulated production? Andy Levi Yes. Kim Cocklin Yes, [indiscernible] we are not, no I mean, there is no need to do that with where gas prices are currently and certainly where they’re anticipated to be if you look at any of the forecast from the EIA or any other forecasting services that are reputable and reliable. They have through the next 10 years, gas prices in the $4 to $6 range and I think, I was looking, yesterday our [indiscernible] dropped from last year to this year of about $0.70. We were at $4.40 I think last year and this year we have [indiscernible] of about 370 and that’s all driven as a result of the 50% market purchases that we make annually to fulfill those requirements. So, if you set that up, you got to assume production of the field and then you got to assume an ROE and by the time a lot of that stuff puts you out of the market or above market prices which I don’t think it’s a – it’s not a good – it’s not anything that we would consider doing right now. Our highest and best uses to put the dollars we have in our infrastructure and we have a significant amount of infrastructure that we can invest in for a long period of time and as long as we are able to have the balanced regulation and all of the jurisdictions where we are situated and achieve the returns and continue to reduce the regulatory lag and continue to improve the recovery of the fixed cost in a customer charge that’s our strategy. But, we want to put it, I mean, the production side doesn’t help us with our continued desire and highest priority to become the safest utility in the country either. Andy Levi Got it and one last question. I don’t know if you can quantify this, but just price of gasoline has clearly dropped, you guys have a lot of trucks, I am just curious if the prices were to stay kind of where they are what the angle benefit could be? Kim Cocklin Our trucks run on natural gas. We don’t have anything on [just getting] no, I don’t know. Bret Eckert Hi Andy, we don’t think if that had the impact. On moving items, I think we will still be in that same [indiscernible] Kim Cocklin We’ve got a system which dispatches those trucks very efficiently and effectively so that we minimize the mileage that they travel every day. But that’s not a needle move or either. Andy Levi Right, thank you very much. Kim Cocklin Thank you very much. Operator Thank you. Ms. Giles, there are no further questions at this time. I would like to turn the floor back to you for any final remarks. Susan Giles Well, thank you Melisa and I just want to remind all of you that a recording of this call is available for replay on our website through May 6. We appreciate your interest in Atmos and thank you for joining us. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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Piedmont Natural Gas’ (PNY) CEO Tom Skains on Q4 2014 Results – Earnings Call Transcript

Piedmont Natural Gas Company Inc. (NYSE: PNY ) Q4 2014 Results Earnings Conference Call January 05, 2015, 10:00 AM ET Executives Nick Giaimo – IR Tom Skains – Chairman, President & Chief Executive Officer Karl Newlin – Senior Vice President and Chief Financial Officer Franklin Yoho – Senior Vice President and Chief Commercial Officer Analysts Chris Turnure – JPMorgan Andy Levi – Avon Capital Advisors Spencer Joyce – Hilliard Lyons Operator Good day, and welcome to the Piedmont Natural Gas Year End 2014 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Mr. Nick Giaimo. Please go ahead. Nick Giaimo Thank you, Jamie. Good morning, everyone, and thanks for joining the Piedmont Natural Gas year end 2014 earnings conference call. This call is open to the general public and is being webcast live over the Internet. If you would like to access the webcast of this call or view the slides of the accompanying presentation, please visit our website at PiedmontNG.com and choose the For Investors link. On the right hand side of that page, you will find the appropriate links. On the call today presenting prepared remarks, we have Tom Skains, President, Chairman, and Chief Executive Officer, and Karl Newlin, Senior Vice President and Chief Financial Officer. Other officers of the company are also in attendance to take your questions. Finally, this call may include forward-looking statements, and our actual results may materially differ from those statements. More information about the risks and uncertainties relating to these forward-looking statements may be found in Piedmont’s 2014 Form 10-K, filed on December 23rd with the SEC. And with that, I will turn the call over to Tom. Tom Skains Thanks, Nick, and good morning, everybody. And thank you for joining us for our year end 2014 earnings conference call. I know many of you are just getting back into the office after the holidays, and we really appreciate you taking the time to be with us today. As you know, we filed our 2014 10-K and issued our year end earnings release on December 23. This morning, I am going to talk about our 2014 accomplishments and provide you with a general update on the company. Then I’ll turn it over to Karl to give you a more detailed discussion of our 2014 financial results and our 2015 earnings guidance. Let’s begin on slide 2, since Nick has already covered slide 1. I’m extremely proud of what our team accomplished in 2014. We generated net income of $144 million and diluted earnings per share of $1.84. This was 7% and 3% higher respectively than 2013 results. 2014 was also a good year for customer growth. We added more than 16,000 new customers to our system, the strongest year of customer growth since 2008. We executed our regulatory strategy with general base rate relief in North Carolina and successfully completed the first year of Integrity Management Riders or IMRs in both North Carolina and Tennessee. We also outlined future growth in our joint venture portfolio with the announcement of our 10% equity participation in the Atlantic Coast Pipeline project. As Karl will discuss in a moment, we completed the $515 million utility capital expenditure and joint venture contribution program for 2014. Over half of our 2014 capital spend was dedicated to integrity management. And as I just mentioned, we have IMRs in place to recoup that spend in a more timely and efficient manner. Part of our future capital expenditures will be to continue to serve new natural gas power generation facilities in our region. In June, we announced a new power generation delivery project for Duke Energy to serve their planned W.S. Lee facility in Anderson, South Carolina. During the year, we took advantage of the favorable interest rate environment and issued $250 million of 20 year debt at a coupon rate of 4.1%. And finally, our Board once again demonstrated its confidence in the company’s strategic growth plan by raising our dividend in 2014 for the 36th consecutive year. Slide 3 shows our 2014 net income of $144 million, which was 7% higher than 2013. Higher top line margin growth and increased earnings contributions from joint ventures more than offset increased O&M depreciation and interest expense to support that growth. On slide 4, we highlighted our gross customer additions for the year. As you can see, customer gains of 16,251 in 2014 were 14% better than last year’s growth and produced a gross customer growth rate of 1.6% above our initial forecast for the year. Notably, customer additions in all categories reflect good economic growth across our three state service territory. We expect this momentum to continue, which is why we are again forecasting a growth rate of 1.6% in 2015. Slide 5 is an overview of our constructive regulatory environment. In North Carolina, we settled a general rate case and new rates went into effect in January 2014. The settlement includes a 10% return on equity with a 50.7% equity capital component. We also have implemented an IMR in North Carolina to allow us to earn a recovery of and a return on our system integrity investments outside of general rate cases on an annual basis. Our first annual North Carolina IMR adjustment of $0.8 [ph] million was effective in February 2014. We were granted a similar IMR mechanism in Tennessee with the first annual margin adjustment of $13 million effective in January 2014. Subsequently, we made additional IMR filings in both North Carolina and Tennessee. In North Carolina, we filed for an annual margin adjustment of $26.6 million to be effective February 2015. In Tennessee, we filed for an annual margin adjustment of $6.5 million to be effective January 2015. Both filings are before our state commissions and are pending regulatory approval. In South Carolina, we agreed under our last annual rate stabilization filing to an allowed ROE of 10.2% and to an equity capital component of 55%. The new or proposed rates in all three states are consistent with the margin assumptions we provided when we initiated fiscal year 2015 earnings guidance last November. Moving to slide 6, we show our two in-development joint ventures, Atlantic Coast Pipeline and Constitution Pipeline. We announced Atlantic Coast Pipeline or ACP in September 2014. ACP is an interstate pipeline that will run from West Virginia through Virginia and into eastern North Carolina and will have initial capacity of 1.5 billion cubic feet per day. The total project cost is estimated at $4.5 billion to $5 billion and our ownership percentage is 10%. Our other partners are Dominion Resources, who will construct and operate the pipeline, Duke Energy; and AGL Resources. In addition to our proportional cost of the project, we intend to make a $190 million utility capital investment in order to re-deliver ACP gas supplies to local North Carolina markets. ACP made its FERC pre-filing request in October 2014. Our targeted in-service date for ACP is November 2018. Constitution pipeline is an interstate natural gas pipeline that will connect natural gas supplies and gathering systems in Susquehanna County, Pennsylvania to the Iroquois Gas Transmission and Tennessee gas pipeline systems in New York. Williams is the project operator and is a joint venture partner, along with Cabot and WGL. We owned 24% of the pipeline, which is estimated in total to cost $730 million. We received the FERC 7(c) certificate for Constitution in early December 2014 and later in the month we received a notice of complete application from the New York Department of Environmental Conservation. Our targeted in-service date is late 2015 or 2016. In conclusion, 2014 was a very good year for our company. We invested in and delivered substantial earnings growth for our shareholders, executed our regulatory strategy to achieve a fair return on invested capital and reduce regulatory lag, and pursued both utility and complementary joint venture opportunities. I am extremely proud of our nearly 1,900 dedicated and talented employees and want to thank them all for their good work during the course of the year. And with that, I will turn the call over to our Senior Vice President and Chief Financial Officer, Karl Newlin. Karl Newlin Thank you, Tom, and good morning, everyone. As Tom mentioned, we had a good year in 2014, with net income of $144 million and diluted earnings per share of $1.84. Before we get into the details of the income statement, let me touch on our utility capital expenditures and joint venture contributions found on slide 7. In 2014, we invested $515 million in support of customer growth, system integrity programs, and joint venture opportunities. Capital expenditures related to customer growth and system integrity are shown in the blue and red bars respectively. The purple bar represents contributions made to our joint ventures, which in 2014 included investments for the Constitution Pipeline project. In 2015 and 2016, our forecasted joint venture contributions are for both the Constitution and the Atlantic Coast Pipeline projects. And in 2017, the forecasted contribution is only for the Atlantic Coast Pipeline project. As we noted in the 10-K, the partners of ACP intend to seek project financing for 70% of the construction cost and so the amounts shown here only represent our portion of the remaining 30%. We have added light blue bars in 2016 and 2017, which represent utility CapEx under our Atlantic Coast Pipeline redelivery contracts. These expenditures will be supported by long-term contracts and will not be subject to rate cases for recovery of and on these investments. Of the $190 million in utility capital expenditures we plan to invest associated with the redelivery of ACP volumes to North Carolina markets, $170 million will be supported by such contracts, the majority of which will be invested in 2018. Finally, during the second quarter we announced a new power generation delivery project for Duke Energy to serve the W.S. Lee facility in South Carolina, represented by the green bars, in 2015 and 2016. Our contract with Duke was approved by the Public Service Commission of South Carolina in June and we are targeting a May 2017 in-service state. As you can see, with the utility capital expenditure and joint venture contribution program totaling more than $600 million in 2015, 2016, and 2017, we are continuing to make significant investments in the growth of the company. Moving to slide 8, margin of $690 million in 2014 was 11% higher than in 2013. Nearly half of the increase was from customer growth, the full year impact of new rates for residential and commercial customers in North Carolina and Tennessee, and overall colder weather. The remainder was attributable to increased transportation services under new power generation contracts placed into service and secondary market activity. On the expense side, slide nine, O&M of $271 million was 7% higher than last year, primarily due to colder weather across our service territory. As a result of the colder weather, payroll, bad debt expense and contract labor were higher than both last year and our operating plan expectations. In addition, regulatory expenses increased due to amortization changes under the North Carolina rate case. Slide 10 shows depreciation expense of $119 million and general taxes of $37 million, which were 6% and 8% higher than last year respectively. The increase in depreciation was due to increased planned service and related mostly to power generation projects and investments in system integrity programs. Our general taxes were a result of increases in property and franchise taxes. On slide 11, income from joint ventures was $33 million in 2014, 26% higher than last year. So growth was due to increased contributions from SouthStar, primarily due to the new Illinois customer base, as well as higher customer usage as a result of colder weather. In addition, AFUDC from Constitution Pipeline also added to joint venture contributions. Turning to slide 12, interest expense of $55 million was 119% higher than in 2013. This was the result of lower AFUDC interest income, higher amounts due to customers, and higher long-term debt interest expense from new issuances in both 2013 and 2014. As I mentioned, full year diluted EPS came in at $1.84, which is below our revised 2014 guidance of a top half of $1.80 to $1.90. This was the result of three items that occurred during the fourth quarter. First, last year we filed with the TRA to recover $3.7 million in prior period uncollected gas costs. We ultimately settled with the TRA staff to recover $2 million of those costs and we wrote off the $1.7 million difference. Second, the year end stock price of $38 caused us to accrue additional incentive expense for future equity awards. And finally, AFUDC came in lower than projected for the fourth quarter. Lastly, on slide 13 we’ve outlined the assumptions underlying our 2015 earnings guidance of $1.82 to $1.92 per diluted share that we issued in November 2014 and reaffirmed in our December earnings release. Our margin assumptions include customer growth of approximately 1.6%, the expected impact of Integrity Management Riders in North Carolina and Tennessee, the full year impact of the 2013 North Carolina rate case that went into effect last January, lower wholesale secondary marketing margin due to normal weather, and a reduction in margin in South Carolina under the annual rate stabilization adjustments. We expect O&M to be up less than 2% from 2014 results. We expect to realize increased joint venture contributions due to AFUDC from the Constitution and the Atlantic Coast Pipeline projects and have higher interest expense due primarily to the $250 million in long-term debt we issued last September. The guidance also assumes higher depreciation due to additional planned service and approximately $13 million in utility AFUDC. On the financing side, we plan to issue both new long-term debt and equity in 2015 to maintain our targeted leverage ratio of 50% to 60%. As outlined in our 10-K, we intend to issue up to $170 million through an at the market equity program that will run through fiscal year end 2016. This program will supplement the other equity programs we already have in place. I thank you and we will now turn the call back over to Nick to take any questions. Nick Giaimo Thank you, Karl. Jamie, we are now ready to open the call for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] And we’ll now take our first question from Chris Turnure with JPMorgan. Please go ahead. Chris Turnure Good morning, guys. Tom Skains Good morning, Turnure… Chris Turnure Happy New Year. Can we get a little bit more color on the CapEx table in terms of JV contributions? Could you give us a breakout of how much is going to Constitution and how much is going to ACP in 2015 through 2016? Karl Newlin Yes. Chris, I don’t have that breakdown right in front of me, but I’ll tell you the bulk of that is going to be for Constitution. Given that they got their 2017 certificate and were waiting on some finalization of approval from New York. I would expect with the turning of dirt and construction beginning most of the expenditures are going to be for Constitution. ACP continues to go through its pre-filing process. And so, again, most of the dollars are going to go towards construction at Constitution. Chris Turnure Okay. And then, you said on the ACP utility CapEx, the balance, what’s not spent in 2016 and 2017, is probably all going to be spent in 2018? Tom Skains Yes, that’s right. So you are alluding to the $190 million of utility CapEx that goes to support three delivery contracts under ACP. That’s correct. And the bulk of that will be spent in 2018. Chris Turnure Okay. And then, is there any extra color that you could give us around the equity issuance that you announced in the 10-K? Will that be sufficient to cover your needs through 2016, at least? Tom Skains We anticipate that it will be sufficient to cover our needs through 2016. The at-the-market, or some people call them a dribble program, allows us that ability to issue into the market over the next two years and to be somewhat opportunistic with the timing and the price at which we issue the shares. In addition, I would remind people that we have a DRIP program, a dividend reinvestment program that adds about $27 million a year in equity as well. So that’s an additional $54 million over the next two years. So between that and the dribble or the at-the-market program, we do think that it’s sufficient. If we were to encounter a need for additional capital expenditures or additional opportunities, we could always avail ourselves of a regular marketed offering on top of that. But currently, the $170 million as outlined in the 10-K we deem to be sufficient. Chris Turnure Okay. And then switching gears to customer growth, it looks like you guys are anticipating a little bit of a higher rate than you originally anticipated last year. So the 2015 number is going to be higher than the original 2014 number. But kind of where is that coming from? Is there any change in the anticipated mix there? And then, specifically on residential conversions, are those people converting from oil or are they converting from some other source? Franklin Yoho Chris, this is Frank Yoho. We, like you said, continue to see pretty strong progress and mostly in the residential new construction market. And we’re seeing that across all three states, very consistent across all three states the growth there. And the big growing area is the residential new construction. Commercial is firming up. It continues to do well. And in the conversion market, you mostly see propane and fuel oil. You may see a little bit of electric here and there, but as the preponderance of it is fuel oil and propane. Chris Turnure Okay, great. That’s helpful. Thanks, guys. Operator We’ll take our next question from Joe Zoe with Avon Capital Advisors. Please go ahead. Andy Levi Hi. It’s Andy Levi. How are you? Tom Skains Good morning. Karl Newlin Good morning, Andy Andy Levi Happy New Year to you guys. Karl Newlin Happy New Year. Andy Levi Just a couple of quick questions. Is there like a weather versus normal for 2014 in earnings per share that you can give us? Karl Newlin It’s Karl. I won’t give an exact earnings per share. But you are right; we had a lot of things that happened because of the weather. So as you look to try and normalize it, I mean, there’s just a few things I would point out. To weather adjust, I don’t [ph] remove the incremental margin results that accrued from the wholesale marketing activity, and to normalize that, if you look just at our secondary market activity over and above the results from 2013, I would say those resulted from the weather. And also normalize SouthStar for weather, so to remove kind of the margin component of it. On the expense side, we had some higher O&M that would not have occurred without the weather, namely, over time, some higher bad debt accruals and specific contract labor in our call centers, as well as the incentive compensation accruals. And again, for normalization, I think you can look at prior year results for that. And then, in addition, we also had some one-time items on the expense side that affected the results that should not recur. We had a $2 million write-off of an investment we held at cost and then we also took the $1.7 million write-off for prior-year deferred gas costs in Tennessee that I mentioned in the prepared results. So netting all that out, removing some of the margin, adjusting the expenses, and adding back the one-time items, I would point back to our original earnings per share guidance range in 2014 of $1.73 to $1.83, again in 2014, and I think our results would have come in probably somewhere in the upper half of that range. Andy Levi Got it, okay. And then – so the $2 million and the $1.7 million, if you kind of strip that out, right, because you said that’s kind of one time, and then… Karl Newlin Yes, add it back. Andy Levi Right, right, and then you had higher – so that would be not including the $1.73 to $1.83, obviously. And then, O&M less the weather or whatever it is, I guess what you are saying is go to like the midpoint of the range or something like that and that would kind of give us our weather effect? Tom Skains Yes. I mean, our – at the time when we gave guidance for 2014, we gave a 3% increase in O&M. So that was our expectations going in. So you could take the 2012 number, add the 3% growth, and that would be kind of your normalized O&M for normal weather. Andy Levi Okay. And then on SouthStar, just remind me because I don’t know the answer. I probably should. But they don’t have any – there’s no volatility relative to commodity prices, right? It’s all just purely volume that you would benefit or not benefit from? Tom Skains Yes. They definitely benefit from colder weather. They can be exposed to the commodity, but they do a very nice job of locking in the contracts and trying to hedge against the weather as well. It’s mainly – it is, it’s a retail customer business and they would benefit from additional cold weather usage, as well as additional customer count. Andy Levi And they only deal in natural gas, right, not in any other… Tom Skains That’s correct. It’s only natural gas, and retail marketing. Andy Levi And how much – do you know how much was the incremental bad debt expense for 2014? I mean, I know that it was kind of part of the stuff that you were talking about as the pluses and minuses, but just on the bad debt, do you know how much – relative to normal, I guess? Karl Newlin It was about $2 million, and that’s pretty common for when you have a period of… Andy Levi Yes. Karl Newlin Colder than expected weather. Andy Levi Okay. And then the last question, just around the equity, is the $54 million which is your, I don’t know, DRIP or ESOP or your plans, whatever, is that a part of the 170 or is that incremental to the 170? Karl Newlin Incremental. Andy Levi And you don’t give a share count or anything, like what the average share count should be for… Tom Skains No, we don’t. But we give guidance on a diluted EPS range. So hopefully between our share count today, kind of the numbers we’ve been talking about and the equity issuance, you can back into what you think a fully diluted share count would be. Andy Levi And beyond the blackout periods for the dribble, which I guess are probably around earnings and things like that, are there any type of – like on a stock buyback, there’s a percent of the volume that you can do on a daily basis. Is there anything like that on the dribble? Karl Newlin Yes. There’s a number of limitations on an at-the-market program. You mentioned the blackout dates; as well, there’s volume considerations around it, so. Andy Levi Do you know what those volume considerations are? Karl Newlin I do not know what those are. But, again, we anticipate the $170 million to be adequate for what we’re looking to do over the next two years. Andy Levi Okay. And I guess, that we should kind of – just kind of evenly kind of spread it out, or do you think it’s more weighted towards 2015, the 170… Karl Newlin One of the nice advantages of that program is we can be opportunistic in the marketplace over the next couple of years with it. But from a modeling standpoint, I think it’s safe to assume you just take that and divide it by two. Andy Levi Got it. Okay. Thank you very, very much. Karl Newlin Sure. Operator [Operator Instructions] And we’ll take our next question from Spencer Joyce with Hilliard Lyons. Please go ahead. Spencer Joyce How are you guys? Happy New Year. Karl Newlin Happy New Year. Tom Skains Hi, Spencer. How are you? Spencer Joyce All right, doing well. Thanks for asking. Perhaps, Karl, just a quick one here. I wanted to go back to slide 6 where you all outlined the $26.6 million ask on the North Carolina IMR. And I know it’s tough to kind of project forward your regulatory proceedings. But just based on where the system integrity CapEx budget is, particularly for this year, I would assume our filing at this point next year would be somewhere similar to that number. Is that a pretty fair general assessment? Karl Newlin I think that’s a fair assessment. Spencer Joyce Okay. And then, perhaps secondarily, I’ve noticed a general upward trend in the utility CapEx budget just here over the past few quarters. Have you seen perhaps a more robust organic outlook for the utility, or is that really more of a natural function of just being a little closer to the timing of this trend and having a little better handle on where you may want to put some capital dollars? Tom Skains Yes. Well, two answers to that. I mean, as with any projections, you are closer to the actual spend date; your estimates are going to be more accurate. So you are right. As you look kind of two, three, four years out, the numbers are going to shift around a little bit just because it’s difficult to predict further into the future. And secondly, the increase in the utility CapEx is really driven around the two things that are highlighted in the two bars. I mean, it’s one; Frank Yoho outlined the customer growth expectations that we have. And as you have more customer growth, you necessarily will have more capital expenditures for the customer growth side. And on the system integrity, we continue to have a robust program to invest in the security and safety of our system, and that program continues. So I think you are seeing just those two trends continue in our CapEx projections. Spencer Joyce Fantastic. Thanks for the color. Karl Newlin Yes. Spencer Joyce That’s all I had. Nice year. Tom Skains Thank you. Operator And there are no further questions in queue at this time. I’d like to turn the conference back to our presenters for any additional or closing remarks. End of Q&A Nick Giaimo Thank you, Jamie. This concludes our year end 2014 earnings conference call. Thank you all for joining us this morning. Operator And that does conclude today’s conference. Thank you for your participation.