OGE Energy Corp. (OGE) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the OGE Energy Second Quarter Earnings 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 may be recorded. I would now like to turn the conference over to our host of today’s call, Mr. Todd Tidwell. You may begin.

Thank you operator and good morning everyone and welcome to OGE Energy Corp’s Second Quarter 2015 Earnings Call. I’m Todd Tidwell, Director of Investor Relations and with me today, I have Sean Trauschke, President and CEO of OGE Energy Corp and Steve Merrill, CFO of OGE Energy Corp. In terms of the call today we will first hear from Sean, followed by an explanation from Steve of second quarter results and finally, as always, we will answer your questions. I would like to remind you that this conference is being webcast and you may follow along on our website at oge.com. In addition, the conference call and the company’s slides will be archived following the call on that same website. Before we begin the presentation, I would like to direct your attention to the Safe Harbor statement regarding forward-looking statements. This is an SEC requirement for financial statements and it simply states that we cannot guarantee forward looking financial results. But this is our best estimate to date. I would also like to remind you that there is a regulation G reconciliation for gross margin in the appendix along with projected capital expenditures. I will now turn the call over to Sean for his opening comments. Sean?

Thank you Todd. Good morning everyone and thank you for joining us today on the call. We have a number of accomplishments to update you on so let’s briefly touch over a few highlights. Early this morning we reported second quarter consolidated earnings of $0.44 per share compared with $0.50 in 2014. Year-to-date we are on plan and Steve will discuss the financial results in more detail in just a moment. We have many opportunities to enhance shareholder value and provide customer solutions and in fact just this quarter we received the JD Power Award for customer satisfaction for the third straight year. This the fourth award in five years and a real credit to our team for the innovation and execution we’re doing with our grid. We continue to believe our businesses are strong and well positioned for the long term growth and value creation, Enable refreshed guidance and recently increased the distribution consistent with the stated growth rate guidance of 3% to 7%. And as we’ve said before, cash distributions received is the key metric we’re using for Enable. Distributions from Enable will continue to fund our dividend and capital expenditures associated with the environmental compliance plan. Turning to the utility, our service territory remains strong as Oklahoma and in particular, Oklahoma City continues to outpace the nation in terms of economic growth and low unemployment. We’ve added another 9000 customers compared to the second quarter of 2014 and I am pleased to announce three major economic development accomplishments. The first is an advanced technology micro steel mill located in south eastern Oklahoma which will provide 300 jobs and up to 40 megawatts of load for OGE over the next five years. The second is a cold storage facility in Portsmouth which will add 100 jobs and up to 20 megawatts of load to our system. And finally, Boeing has announced Oklahoma City as its new headquarters for the aircraft modernization and sustainability division. In addition, 900 high paying jobs are being relocated to the city bringing the total Boeing jobs to almost 3000 over the past few years. While we’re very excited to have these new businesses in our service territory, the real benefit of this is the added economic impact of new families moving into the service territory which contributes to making local businesses stronger and growing our communities overall. These are examples of the attractiveness of our service territory and the focus of our economic development efforts. Low rates and high reliability are key components in economic development and these businesses highlight our region’s growing economic diversity. Attracting customers with not only competitive rates but additional products and services is a key component of our strategy. We’ve talked many times about our smart hour’s program which allows customers to choose pricing and usage patterns realizing real time data accessible through their own smartphones or computers. A consultant recently testified before the Oklahoma Commission that our smart hour’s program was not only one of the best in the U.S., but the world. We believe offering this type of program to customers is the key reason why we’ve won the JD Power award for 3 years in a row. I am also pleased to announce our first solar installation came online last week. This 2.5 megawatt facility located at our Mustang facility will provide better economics for customers, a rooftop seller and useful information regarding solar’s impact on our system, how the panels hold up in severe weather and if this is a viable renewable product for our customers. Oklahoma Governor, Mary Fallon and other community and state leaders were on hand at the dedication ceremony welcoming what could be another exciting chapter in Oklahoma’s rich energy history. I was pleased to hear the Governor commend our company for our low rates, high reliability, innovation and probably most importantly, our community engagement. Before turning the call over to Steve, I’d like to provide you an update on regulatory events in Oklahoma and Arkansas. In Oklahoma, we recently received approval of our economic development program for 12 sites within our service territory. This program will allow us to provide a discount to new customers that provide at least 1 megawatt of load to areas of our system with available capacity. We believe this incentive mechanism will be a significant factor in the future for businesses considering locating to Oklahoma. Turning to our environmental file in Oklahoma, the case is now being considered by the 3 Oklahoma commissioners and we expect an order soon. The commissioners began deliberating on Tuesday and indicated they’d like to get an order out in 30 days. 2 commissioners verbally stated they felt the scrub convert plan was reasonable but the points of discussion were around recovery, specifically whether it should be in riders we proposed or considered in the upcoming rate case. Regarding the Mustang modernization plan, the commissioners did not appear they were ready to give pre-approval. However, two commissioners did acknowledge the value of the site and its ancillary assets. I define these as the existing gas supply, the water supply, the transmission and connection and most importantly a quality workforce at the site. We sought pre-approval and a rider for this plan in order to smooth the rate impact out for customers. Moving to the rate case, we filed our notice of intent with the Oklahoma Corporation Commission last week. Our plan is to file the case no later than November 30, 2015 with the test year ending June 30, 2015. The case will focus on two main issues. The first, as we’ve discussed, we’ve terminated a large wholesale contract and several smaller contracts and will now seek to place approximately 300 megawatts of OG&E’s generating capacity into retail rates. This is a great deal for customers as the embedded capacity cost is less than $250 per kW. The second focus, we’ll be able to recover the repo portion of several transmission lines they were in service that we’ve constructed at SPP’s direction over the few years. In addition to the two [indiscernible] above, this will also satisfy the requirement on the statute 286. Moving to Arkansas, where’s there’s similar legislation on the books, it’s referred to as Act 310. We have filed under Act 310 which allows us extensive filing of environmental expenditures for assets placed in the service. We filed in May, put the rates into effect in June and our hearing’s been scheduled for the case in October and we will update the file in every six months as additional compliance investments are made. Continuing with Arkansas, we’re excited to see the state moving forward in a direction that has great potential for the future of rate making. Formula rate making has taken a hold in many jurisdictions and can streamline the process of reduce regulatory lag in the same time to protect the customer and we’re encouraged by the state’s forward thinking. Now, let me provide you an update on our compliance progress today regarding the ACI systems from MATS compliance. We expect to finalize installation contracts this summer and construction will commence in the second half of this year to meet the April 2016 compliance deadline. While the MATS rules aren’t finalized, the compliance deadline remains in place which requires us to move forward with the controls equipment. Looking at the regional haze compliance plan, installation of the low NOx burners is now complete on all of the coal units. The permitting process for the remaining three units seminal has been completed and installation will begin on those units this fall and will be completed in the spring of 2017. The equipment and installation vendors for the two dry scrubbers at Sooner have been selected and schedules and budgets are on plan. For the Mustang plants the turbine selection has been completed and the permit applications have been filed with the Oklahoma Department of Environmental quality. And finally, engineering studies for the conversion of the two coal units at Miscurgie have recently been completed and with permit applications to be submitted to the Oklahoma Department of Environmental Quality in the second half of 2017. For coal, our plan is to continue to run these coal units as long as possible to maximize the benefits for our customers. And finally the EPA issued it’s much anticipated clean power plan on Monday. The rule is complex and close to 3000 pages, including the federal implementation plans. We’re probably no different than the rest of the industry, it will take us sometime to conduct our own analysis. Considering the actions we have taken for regional haze compliance, we will reduce our CO2 emissions in excess of 30% by 2020 without the introduction or implementation of the clean power plan. Before closing, I want to update you on Enabled CEO search. The search is going well and we’re beginning the interview process. I am pleased to see that there’s been a great deal of interest in this position and our committee is pleased with what we’ve seen thus far. And so stay tuned, as always, we’ll keep you updated with any news or changes on that front. Before I conclude, let me just say that this is my earnings call as CEO. The transition from Pete to me has been a smooth one and among the many things one does when assuming such a role, I’ve met with many members which is what we call our employees here at the company throughout our service territory. I am pleased with the enthusiasm they’ve shown to my leadership, to the challenges faced in our company and the opportunities we have before us. We asked a lot of our team and I’m convinced these folks are up to any tasks set before them. So in closing, you can see we’ve got a lot going on in the company but I want you to know we’re committed to executing on our strategy to continue growing our business and will continue to have top quartile dividend growth and our expectation, its dividend trajectory will not change. With that, I’ll turn the call over to Steve to review our financial results for the quarter. Steve?

Thank you Sean and good morning. For the second quarter we reported net income of $88 million or $0.44 per share as compared to net income of $101 million or $0.50 per share in 2014. The contribution by business unit on a comparative basis is listed on the slide. At OG&E net income for the quarter was $69 million or $0.34 per share as compared to net income of $77 million or $0.38 per share in 2014. Second quarter gross margin at the utility decreased approximately $2 million which I’ll discuss on the next slide. O&M is on plan for the year, our goal is to keep O&M growth no higher than the rate of inflation. Depreciation increased $9 million and taxes, other than income, increased $3 million primarily due to the large transmission lines that were added in the last 12 months. Part of the over $800 million of plant placed in service in 2014. Finally, other income increased $2 million largely due to increased margins from the guaranteed flat bill program. Turning to the second quarter gross margin, utility margins were down approximately $2 million for the second quarter of 2015 compared to 2014. There were four primary drivers for the change in gross margin. First, wholesales transmission revenues decreased $10 million compared to the second quarter of 2014 primarily due to an adjustment of the SPP formula rate to reflect the continuation of bonus depreciation. Second, mild weather translated into $2 million of lower gross margin as cooling degree days were 11% lower compared to the second quarter of 2014. Partially offsetting these decreases was new customer growth contributing $5 million. We added nearly 9000 new customers to the system as compared to the second quarter of 2014, growing at our historical rate of 1%. And finally, an additional $4 million of margin was associated with customer migration between right classes. For the second quarter 2015, ENABLE midstream made cash distribution approximately $35 million to OGE in contributed earnings of $18 million or $0.10 per share compared to $24 million or $0.12 per share in 2014. The decrease is primarily due to lower commodity prices. Despite the current commodity price environment, Enable continues to grow their quarterly distribution rate. The second quarter rate increased recently announced was 1%, raising the distribution to $0.316 per unit. Overall Enable has raised its quarterly distributions 10% since its IPO in early 2014. Year-to-date OGE has received approximately $69 million of distributions from Enable. Turning to the 2015 outlook, guidance remains unchanged and is based on assumptions set forth in our 2014 10-K. For the midstream business we’re projecting to receive approximately $140 million in cash from distributions. Our cash flow position for 2015 remain strong and is key to our value proposition which is growing utility EPS and utilizing our cash flow received from Enable to fund our capital investments and grow our dividend at 10% annually. This concludes our prepared remarks, and we’ll now answer your questions.

[Operator Instructions] And our first question comes from Michael Dandurand of Goldman Sachs. Your line is open.

Hey guys, thanks for taking the question and congrats on your new role Sean. Just wanted to start out with Enable here and some of the strategy there and just maybe to start with the CEO searches there. Can you just outline some of the criteria you’re looking for? Is it someone with more operational experience or transactional, if you could just touch on that really quick.

Yes, I think -- so a couple of key factors. We’re looking for somebody that can integrate the two companies. The companies are put together, build the team, grow the company and someone that’s knowledgeable about the business and well-known in the industry, not just the customers but to shareholders alike.

Okay, great color. Just as far as we’ve seen in the market, obviously one of our weakness in the MLP market, is there a point where, from a strategic standpoint, it makes sense to consider bringing some of the assets back into the company or is the commitment still to keep Enable standalone?

So, Michael, the commitment, and we take a very long term view for value creation. And you’re right, there has been some weaknesses in the MLP market but that doesn’t change our conviction, our strategy that we want Enable to be a standalone entity that goes and acquires it, its growth strategy -- grows its own business and requires its own capital.

Okay, got it. Just shifting off Enable real quick to the Oklahoma regulatory outlook and with the following deadline of November, just what would that put our interim rates at, when will you be eligible to implement those and what’s the thinking there?

We filed late this fall, rates would go into effect from May-June timeframe of next year, so that was the timing. As far as our notice for filing of intent, this is just consistent with our plan. We’d said at the beginning of the year we were going to file a rate case to recover these two items and we wanted everybody to know that’s what we’re doing.

Okay, great, that’s all I have, thank you.

And our next question comes from Paul Patterson of Glenrock Associates. Your line is open.

You guys spoke very quickly at the beginning of the call and I’m afraid that I couldn’t keep up with you really on Mustang and what have you and what the OCC talked about. Could you go over that a little bit more, what they basically, what you think they’re coming down to in terms of the case?

Sure, so the OCC began deliberations Tuesday, about an hour and it did not look like. Just based on their comments that they were inclined to pre-approve Mustang. Recall, we had requested a rider just really from the perspective of trying to smooth out the impact to the customers. But it was noted by a couple of the commissioners that the site has a lot of value and that was the point we’d been making in a lot of our cases, a lot of our discussions. There’s already transmission in our connection there, gas supply, water supply and there’s a workforce there. This is a significantly old plant and we have a window of opportunity to utilize this site that is really closest to the largest centre being Oklahoma City.

But it doesn’t sound like they’re interested really right now in terms of going forward with the Mustang plan?

Well, I think the discussion was around preapproval of the site Paul.

Okay, do we have any sense in terms of how they’re lining up with respect to the ALJ recommendations on the case and commissioner Anthony, I think it is, who put out his declaratory statement, I forget what the technical term was but…

Yes. I’m not sure what the technical term of that was but the commission just they had – this deliberation was one hour and it seems they’re using the ALJ as a guide post and discussing positions there about. I will tell you, our position is this, the commission hasn’t ruled, we do not want to say or do anything based on and speculate on what they could do or what we would do. But what I want to assure you is as we’ve been through and we have reviewed the various outcomes and what I want to convey to you is that we’re prepared.

In terms of Enable, and what we’ve seen in terms of weakness and what have you in the space, is there any thought about what this might mean in terms of in the next year or two in terms of your ability to grow and the outlook for Enable itself?

Well, that was one important thing on the Enable’s call yesterday and on the distribution call they had previously as there was some uncertainty and they needed to really be clear about what their growth strategy was and provide line of sight on how they are going to grow. And I believe they’ve articulated a growth strategy that includes not just volumes, not just gathering and processing volumes but oil as well. So we think they’ve got a pretty good line of sight to growth and over the next couple of years. So even in this commodity market, we feel pretty good about that.

It’s not as big as big as it once was Paul, we have recognized that but don’t lose sight of the fact that it is growing.

Okay, in terms of the cost and capital and what have you, I mean, I guess this is sort of a follow up of the earlier question I mean, what’s your thought in terms of when you see – what we’ve seen in this space, in terms of the advantage that Enable or MLP spaces actually providing. vis-a vis, OGE?

Well, I think the values provided today, it’s going to provide roughly $140 million of cash flow to our company today and that’s why we don’t anticipate changing in the future. I am expecting it to actually go up and that helps us to fund our dividend growth. The increases we’ve identified over the next five years as well as funding a lot of our capital expenditure plans. So I think from that standpoint, there’s a lot of value there and I think over the long term having an entity that runs itself and has to source its own growth initiatives and source its own capital. I think that puts a level of discipline in the business that otherwise might not be there.

And our next question is from Matt Tucker from KeyBanc Capital. Your line is open.

Hey guys, good morning. I just want to ask about the weather impact in the quarter, last year second quarter you indicated weather had an $8 million negative impact to gross margin and you said $2 million versus normal for this quarter, sorry versus last year [indiscernible] $10 million negative impact versus normal for second quarter kind of a lot [indiscernible] of 2% below normal. So is a) other numbers right and b) could there be something else going on there like higher levels of efficiency or customer conservation?

Thanks for the question Matt, this is Steve. No the numbers are right. Really if you look at year-to-date compared to last year it’s about $11.3 million below that but it’s actually flat with normal year-to-date. What happened to us is we had a really wet May and that kept temperatures down, it was unusually wet, record rainfall around here and that had an impact. But quarter-to-quarter it’s about $2.5 million. Whether that’s normal with the prior year, but down about $11.3 million year-to-date compared to last year.

Got it, thanks. And then we just wanted to ask, hypothetically if the commission does not approve our rider, in this case [indiscernible] for environmental advancements, given Enable’s new forecast that they came out with earlier this week, I just wanted to confirm, you’d still be confident in your long term dividend growth target?

Yes.

Okay, great. And then with respect to recovering the retail portion in the transmission lines with your upcoming rate case, can you give us any sense some of the magnitude of that is?

Sure, if you look at the retail portion of transmission and then the expiring wholesale contract, the ask is about anywhere from $20 million to $30 million in the rate case. The transmission rate based impact transmissions by about $100 million. But I don’t want to get that confused with the ask in a rate case. The revenue required would be anywhere from $20 million $30 million combined AVAC and transmission and then any other changes in cost of service associated with that.

Understood, thanks.

And our next question comes from Bryan Russo of Ladenburg Thalmann. Your line is open.

Good morning. Did I hear you correctly that the OCC is expected to issue an order on PCP MNP within 30 days?

That’s what they discussed during the deliberations of Tuesday, Bryan. They had a goal or objective to try to get the order out within 30 days.

Okay, those deliberations, although there’s a transcript public page posted on the website, we can’t actually publicly access the deliberations, correct?

I thought you can. I think you can access the deliberations and will get the transcript out there, Todd with get that out there, if it’s not the commission website.

Okay, great. And assuming the commission denies the MMP, when would you seek recovery of that in a rate case?

Yes, let me just hold that Bryan and I don’t want to get ahead of myself and prejudice any of the deliberations that are going on. But as I mentioned earlier, we’ve thought through a number of different scenarios and what prepared to respond on whatever order comes out.

Okay, just on the 10% average annual dividend, I totally understand that it’s solid but can you just elaborate on initially what were the assumptions of underlying that dividend growth and any trespass you’ve done surrounding ENABLE’s cash flow?

Sure, thanks Bryan for the question actually appreciate the opportunity to clarify this. But we stress that significantly and actually stressed it as if there were zero growth from ENABLE from September of last year on. So distributions didn’t grow at all over that 5 year horizon. We even stretched it to say what if the utility didn’t grow as well, what would we do? And that’s when we came down; we will be very committed to this 10% long term growth rate.

Okay and then lastly, can you just remind us your opinion on the Oklahoma legislation that allows for recovery of [indiscernible] compliance outside of the context from the rate case and why your view differs from these interveners, when it seems pretty clear, what you’re allowed to recover outside of a rate case based on the statute?

Well, thank you Bryan for the question and we agree with your assessment. We think it is very clear what is allowed under the statute and I will tell you I think the state legislature understood that the government mandates were coming our way, when they put…when they unanimously put this House Bill 1910 in the law, and they understood they are keeping us strong and the – federal mandate is in the best interest of customers and us as well, and we did everything we could to fight this. We’ve delayed this increase for a number of years, and but now we are at the point where we need kind of timely approval and cost recovery to comply with these mandates, and so we do believe there is clear, this is provided for. I will tell you, this is a large complex case and that, I know that and there were a lot of interveners and but you think about the twin power plant, there are a lot of interveners in that, and there are a lot of varying opinions on what goes on, and so I think the Commission is trying to be thoughtful and hear those concerns, but at the end of the day, I think everyone acknowledges and understands that the design and operation of award system, and the safe and reliable deliver those energy to customers, that’s our responsibility. And that’s what we do and I mean I think they understand that we are the experts in that.

Okay, and then just lastly assuming you don’t, assuming that you are –CCed in as a writer. Would you have to file multiple ray cases as you spend the environmental CapEx to seek recovery, is that kind of how you would look at it?

Brian again as I said, I don’t want to give into they have not ruled yet and I want to avoid getting into a hypothetical situation, I want to assure you that we are prepared and, we will a dividend is fine and we are in good shape.

Understood. Great.

Brian that’s actually good but keep in mind, remember a lot of this goes in the service and 18 to 19, this cover is going to service in 18, the conversion occurs in 19, Mustang is in between there. So we will be accruing [indiscernible] as we go, and Steve mentioned, we have stressed all this, as we thought about our dividend.

Great, thank you very much.

All right, thanks Brian.

And our next question comes from Anthony Crowdell of Jefferies. Your line is open.

Hey good morning, just a couple of questions, wonder if I can jump on Brian’s question on Mustang, I mean would there be any thought to delaying the…when Mustang goes online based on the outcome or you need it in for reliability and the need to go on in 2018?

Really you know what’s happening there at Mustang, Anthony is, we have a window through the permitting process and basically what happens is, your emissions you take the previous five years and you take the highest emissions over two consecutive years over the prior five years and that is your emission cap for us to put a plan in there. And go back to 2012 when we had those 63 days of 100 plus degree weather. That plant struggled but it ran a lot, and so we are utilizing those emissions, those emission levels to size this 400 mega watt plant. If we delay that, the size of the plant declines and what happens is, the extra value of the size and the contribution to customers declines, it’s not worth this much. So, we have a window there, for us to reutilize an existing site that adds a lot of value to the community.

So I guess two years from 2012 the plant has to go yes online you look through a FUDC [ph] at that point and I know you don’t want to figure the outcome, but whatever the outcome is, that plant really is going to go online some time I guess 2017, 2018.

Yes that’s the plant is going on 2018, that’s right.

2018, alright great. If I could just jump to your favorite topic [Audio Gap]. Those so that the 10% dividend growth is well funded, but if I think that hey, energy does become useful to people in the future and oil prices return to a normal level, and a distribution that ENABLE grow is -- what happens if ENABLE or is there a plant where ENABLE becomes larger or a bigger piece of the pie, than what OGE would like? I know it’s a nice problem to think about, but is there a point where you think ENABLE is much larger than what OGE is --and what do you do for that?

Well, you’re exactly right. That’s right, high class problem to have, that would be a good discussion. We don’t’ have an answer for you now, but I will tell you, you know the utility is growing. And you’ve modeled and you see the growth trajectory that the utility is going to have over the next four or five years, so ENABLE’s got a lot of catching up to do to present that there, and if they did, it’d be a great outcome.

Great, thanks for taking my question and Steve, much better job than your predecessor.

Thanks.

And our next question comes from Charles Fishman of Morningstar. Your line is open.

Thank you. Sean, you mentioned three commercial industrial projects at the beginning of the period, with Marks, and then you talked about some exploration of wholesale contracts. I’m assuming that those wholesale contracts are going to cover the first half, and that those new projects you are adding, in the intermediate term?

I mean, I think from a capacity standpoint, we’ll be in good shape with the additions we are making now, and that is a true statement.

Okay and then as far as any rate base growth from those projects, it’s built into your distribution CapEx on Slide 12?

Yes.

Okay. That was the only question I had. Thank you.

Okay thanks. Take care.

And our next question comes from Sarah Akers of Wells Fargo. Your line is open, Sarah.

Good morning.

Hey, good morning, Sarah.

Just a question on Arkansas. When do you plan to file a general rate case there, which would include the formula rate plan?

You know, right now we have that keyed up for the summer, next summer. We are evaluating that, we’ve got a lot on our plate right now, and but right now it’s keyed up for next summer;

Got it, all set. Thank you.

Thanks.

And our next question comes from Neel Mitra of Tuder Pickering. Your line is open.

Hi good morning.

Hi, good morning Neel.

Question on you know ROEs Are you under [Indiscernible] in 2015 and you know after the rate case, I guess you had the rates put in, sometime midyear, would you be earning an authorized in 2016, is that the right way to look at it?

Yes, we in Oklahoma you know were around 10% will drop and slightly below 10% for 2015, but that will get all fixed in 2016, what we would expect timing was be around May.

Okay and the Mustang CTs [ph] it sounds like that was to be differed into the, into the rate case. Are you expecting that you got a decision in the rate case process that if you don’t, what’s the next course of action as to what you can start that process, because it seems like you have a little bit of window with the permits?

Yes, sure. I mean we are kind of taking a wait and see approach to see what the order comes out with, what the Commission comes out within the order. We have a plan based on what they do, you know we’ve gone through several scenarios, but again we don’t want a bias, and the Commissions deliberations by indicating necessarily what our plan would be with in that regard.

Okay and maybe I can rephrase the regional spending question a little bit, in a different way. Since most of the spending is back end weighted, you know does the -- how important is that [Indiscernible] recovery, could you kind of move the spending over, so it’s primarily 18 and 19 and you could get it all done in a rate case, so you know the timeline you said what the spending plan, that’s the only way to do it.

Yes, --this is Sean. I think the, you are exactly right. It is a lot of the CapEx is back end loaded, but what --what’s going to happen here without -- that you would accrue a few DC, okay. And the way we’ve looked at this is, we propose the rider, it was allowed under the statute as per the previous question, but we proposes the rider and its really our attempt to try to help smooth this impact off the customers. We put this in place because as you know, if you create few DC over this versus collecting this as we go to a rider, ultimately there is going to be a bigger impact to customers. And that was the intent, so from a company standpoint, we can fund this, we can get through this, but the deliberations have really been around this rider and we wanted to --we thought it would be a good idea and a good way to kind of help smooth this up for customers. So I don’t think that it’s necessary for us to move any of the CapEx around from here to here, financially and liquidity wise we are in perfect shape. I think, more importantly, remember the CapEx is driven by the compliance deadlines we have. And so, we have to deploy the capital in order to comply with these various regulations and so, that’s what’s driving the CapEx, not the regulatory strategy.

Okay, great. Thank you very much.

Thanks Neil.

And our next question comes from Joe Zhou of Avon Capital Advisors. Your line is open.

Hi guys, its Andy Levi, how are you doing?

Hey, Andy, how are you?

Oh, I’m glad you are happy to hear from me.

Good.

Yes, but you haven’t heard my question yet.

Well we may have.

I’m teasing you.

We have fun.

No we like you guys, but anyway just a quick question. On the projected capital expenditures, I notice that May’s handout is different than this current handout, and the numbers moved around a little bit, could you kind of discuss that.

Sure. Andy.

And the strategy behind that?

Sure, I mean the strategy is we’ve actually been signing contracts and we are getting more firm on what the actual plans are, and what the costs are looking like. So like 2015 has gone up a bit, that’s really timing of cost moving in from 2016 overall since May, it’s come down about $20 million as we firmed up some of our contracts, in fact it has come down about $55 million since the 10-K. Now it’s just firming up the outlook and the contracts, nothing strategically has gone on, other than we are just further along in the process and its timing.

You know I notice the dollar amounts didn’t really change but you pulled some stuff forward into 2016 from 2017. So the stuff has been pulled forward, and to 2016 that will be able to be part of the rate cases, is that the thinking?

You know it depends on the timings of the rate case, but we only give like if we filed this rate case in November, we only get a six month look, so anything that out that far wouldn’t get pulled in on this next rate case.

Okay so just why did we of this -- go over what you pulled forward and what the impact of that is on earnings?

Yes it’s really associated with the CTs, it won’t really affect earnings, it will be FUDC on that, it will move the earnings up a little bit, but it’s really associated with the progress payments of the build of the CTs and the order for that, so it’s tied to that, it’s not that we intentionally try to move those up, it’s just out of contracts’ layout for the build on the CTs.

Okay, so those won’t be part of the current rate case at least a portion of it won’t be, but you accrue AFCDC and then it will be part of the next rate case, I guess is what you are saying?

That’s correct assuming we don’t get the rider. Keep in mind…

Right, if we should get the rider in ‘17

Our expectation is we do get that rider.

Right, theoretically you should get the rider and getting your 17, right.

That’s correct.

Right okay, got it.

Okay, that explains everything. Thank you very much.

And now any further questions in the queue, I’d like to now hand the call back over to management.

Once again I just want to thank our members for the hard work and dedication, commitment to safety and thank all of you for joining us on the call today. Have a great day.