Good day, ladies and gentlemen, and welcome to the Unitil Q4 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. David Chong. You may begin.

Good afternoon and thank you for joining us to discuss Unitil Corporation’s fourth quarter 2016 financial results. With me today are Bob Schoenberger, Chairman, President and Chief Executive Officer; Tom Meissner, Senior Vice President and Chief Operating Officer; Mark Collin, Senior Vice President, Chief Financial Officer and Treasurer; and Larry Brock, Chief Accounting Officer and Controller. We will discuss financial and other information about our fourth quarter and full-year on this call. As we mentioned in the press release announcing the call, we have posted that information, including a presentation to the investor section of our website at www.unitil.com. We will refer to that information during this call. Before we start, as you can see on Slide 2, any of the comments made today during the presentation about future operating results or future events are forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause our actual results to differ materially from those predicted. Statements made on this call should be considered together with cautionary statements and other information contained in our most recent Annual Report on Form 10-K and other documents we have filed or furnished to the Securities and Exchange Commission. Forward-looking statements speak only as of today and we assume no duty to update them. With that said, I’ll now turn the call over to Bob.

Good afternoon. I’m going to make some opening comments and then Tom Meissner and Mark Collin will handle the details. This morning, we announced 2016 net income of $27.1 million, or $1.94 per share, compared to 2015 net income of $28.3 million, or $1.89 per share. 2016 was a challenging year. We started up the quarter with a $0.20 loss because of a warm winter weather. Ultimately, we were able to make it up and achieve our goal of a 3% increase in EPS due to a variety of measures, including cost control, new rates, growth in our gas business. So the bottom line is, it was a challenging but rewarding year. We also added 220,000 new gas and electric customers and we expect that trend to continue. For the third year in a row, we increased our annual dividend by $0.02 from $1.42 to $1.44, again, this is a policy we expect to continue in the future. Finally, we told our investors that we have great growth potential in our service areas. We conducted a economic study that basically concluded that the Portland and Portsmouth metro areas are the fastest-growing areas in New England. We are aware of hundreds of millions of dollars of new development work in these areas. So we feel really confident about our growth story. So the bottom line, from my perspective is, it was a challenging but rewarding year. We have confirmed our growth story and the company is well prepared to realize those opportunities in the future. So with that, I’ll turn it over to Tom Meissner, Chief Operating Officer who will give you the details on our operating accomplishments. Tom?

Thank you, Bob, and good afternoon. As Bob indicated, 2016 was an excellent year for our utility operations and all jurisdictions. We expect that to continue in 2017. Referring to Slide 7, our 2017 capital spending is budgeted at $102 million, which is just slightly ahead of last year. Of this, nearly 50% will be recovered through annual capital cost trackers and an additional 30% will be spent on growth projects that add new customers in revenue and expand our system for future growth. The remaining investments will be for system improvements, or replacements necessary to maintain the high-quality of service our customers have come to expect. Analyzing the trend since 2013, our total gas and electric rate base has grown by 6% annually, reflecting our commitment to the safety and reliability of our electric and gas systems and our ongoing efforts to expand service to new customers. Moving onto Slide 8, you can see the growth we’ve experienced in our gas division as a result of these investments. Since 2008, when we acquired Northern Utilities, our weather-normalized sales have grown by 22%, we increased our customer base by 15%. Looking ahead, we believe we are well-positioned to continue this expansion of our customer base with a multi-faceted customer acquisition strategy. Slide 9, provides more detail on our growth strategy for the gas division. We still have significant on the main potential with an average penetration rate of 60%. That leaves substantial opportunity to add new customers to our existing mains, which we currently estimate to be about 50,000 potential customers. Next, we have opportunities to extend mains and expand our reach to anchor customers, or to pockets of customers in areas that we’ve identified as attractive for growth and investment. Since 2010, we’ve expanded our distribution system by nearly…

Thanks, Tom. Good afternoon, everyone. As Bob and Tom highlighted, we had an excellent year. Our financial results demonstrate the effectiveness of our diversified and robust business model, as well as continued regulatory successes. Any negative weather impacts over the year were successfully mitigated by new customer growth, new distribution rates, and solid cost management. I’m going to summarize our sales margin, operating expenses compared to last year and then finish with a discussion of our regulatory activities. Turning to Slide 12. Natural gas sales margin was up $1.7 million in the 12 months ended December 31, 2016, reflecting higher gas distribution rates and customer growth. As we’ve discussed on prior calls, there were some weather impacts early in the year, resulting in 8% fewer heating degree days in 2016 than prior year, as well as 6% fewer compared to normal. We estimate that this warmer winter weather negatively impacted gas sales margin by approximately $0.15 per share compared to prior year and approximately $0.10 per share compared to normal. Looking at the fourth quarter for the three months ended December 31, 2016, there were 24% more heating degree days compared to prior year and 13% more compared to normal. We estimate that weather contributed a favorable impact of $0.07 per share compared to prior year and approximately $0.02 per share compared to normal. Importantly, as Tom just highlighted, the underlying growth profile of our gas utility operations remains intact. You can see that weather-normalized sales were up again year-over-year, driven by the growth in large commercial industrial sales of 3.3%. Next, on Slide 13 for our electric division, sales margin was up 3%, or $2.6 million, compared to 2015, reflecting higher electric distribution rates. Weather impacts were estimated to be slightly negative on electric sales and margins, offset by…

[Operator Instructions] And our first question comes from the line of Insoo Kim with RBC Capital Markets. Your line is now open.

Hi, good afternoon, guys.

Good afternoon

Good afternoon.

Just following up on your last comment on the earned ROEs, do you have the number for the weather-normalized earned ROE for the year on a consolidated basis?

As we indicated on an EPS basis, the impact relative to normal was $0.10 per share on the gas and relative to prior year with 15% – $0.15 per share. So you can essentially back into that, it’s slightly higher than 9.5 [ph] than we have – than we actually earned for the year, because weather was unfavorable for the period.

Understood. Got it. And then perhaps, looking at longer-term rate base growth, do you – 6% is definitely very robust versus the rest of the industry. How do you see your rate base growth trending more longer-term?

I think that it will be fairly consistent with what we’ve experienced in the last five years or so in terms of average growth, or if you look at the segments of our business, the gas business is obviously growing a little faster in the 8% to 10% range per year in terms of rate base, and that primarily reflects the extensive amount of cast iron replacement and safety improvements we’re making on the gas system, and we have a lot of future investment in that area planned. And coupled with that is our gas growth with our customer growth being so strong in that area and having lots of opportunity to expand our mains. We’ll continue to see, what I’ll call, above average growth in that area. On the electric side, the rate base growth is a little lower, more in the 3% to 5% growth. And that in addition to the more one-off, if you will, or one-time large investments in the substations what we’re looking at going forward, because I’m sure, you’re seeing across the industry, there’s a lot of interest in a lot of new investment in what are called grid modernization or improvements to the electric system in terms of automation and and various technologies. So we expect that type of growth to continue to be either both mandated or part of the change – the changes going on in the electric utility industry. So that we don’t expect any real tail off in that at any time in the future.

Insoo, this is Bob. One of the reasons why we did the economic study was to really kind of confirm the economic trends, particularly in the Portland and the Portsmouth areas that we have seen over the last couple of years. And again, the study said that the growth opportunities and the further development is across all the economic sectors, whether you’re talking healthcare, housing, leisure activities. So we feel very confident that the growth that we’ve seen in the past, particularly in the gas business really has a long lead time.

Understood. And then when thinking about, I guess, ongoing robust rate base growth, obviously, the dividend track record is pretty impressive. In the past couple of years, you’ve had the 1.4% to 1.5% annual dividend growth. I think the payout ratio is now starting to drift down to the low-70s range. Do you – I don’t think you guys guide to a specific payout ratio, but is it fair to assume that at a certain point with continued growth that the dividend growth would also start to track up as well?

Yes, I mean, that’s a good question. We’ve been fairly consistent in terms of saying that our target given in payout ratio is 70%, 75%. And while any decision about a particular year’s dividend policy would obviously be made based on the company’s performance. I think for planning purposes, that target of the 70%, 75% payout ratio is a good one to use.

Understood. And perhaps a favorite topic of earnings calls for this quarter, but have you guys looked at the various permutations of what a potential impact from the Trump tax reform – or not Trump, but the various versions of the tax reform can mean for you guys in terms of earnings and or cash basis?

Yes, we have and obviously it’s way too early to predict what if anything is going to happen. So with that as a caveat, I think our overall view is depending on what ultimately gets passed our view right now based on conversations we’ve had with EEI and AGA and similar organizations is, it’s probably neutral to slightly positive at this point.

And is that – are you talking about for the regulated industry as a whole, or for you guys specifically?

I can’t speak for the rest of the industry. But certainly for us, it’s pretty straightforward, depending on what they ultimately pass.

Got it. And then perhaps finally, again, a very impressive job in 2016 offsetting all the weather headwinds in the first quarter. I’m not sure if you have addressed this in the past, but the O&M savings that you had in 2016 to offset some of that weather impact, how much of that is sustainable, and or are we going to see some of that come back into higher O&M for this year?

Yes. And so the best way to think about the O&M savings, we saw is we kind of grouped them into three areas. One is, is it the warm weather that they had the impact on revenue, also had impact on some of our expenses, because we – most of our operations and expense activity – maintenance activities on both the electric and gas side are obviously outdoor activities. The weather can play a big impact on that and can have impacts on our system that can be significant, severe weather has negative impacts on the system and on our costs. So part of our savings are – were simply related to the fact we have warm weather also contribute to lower savings. The other group – two groups of savings that we achieved in 2016, one is, our real efficiency improvements. And that is, we continue to look for ways to improve our operations, improve our back office, employ technology, and things of that nature. And those are real savings and we accelerated that and I think and spent a good amount of time focusing on that. Those are really baked in and may represent about a third of these. But again, those won’t reoccur so much again as they will, they do lower the base from which you’re growing off of. And then the last are, we did take some one-time initiatives in 2016 to defer some discretionary spending in your traditional areas. You might think about your travel or just some G&A that you can defer to a later time, and those are likely to come back. So as we go out, I don’t – our outlook isn’t that we’re going to be reducing O&M every year or year-over-year. There are a lot of inflationary pressures, cost pressures, the types of growth we’re seeing, as well as the pickup in the economy, higher interest rates, you can go through a number of things that those are all things we’ll continue to manage as we go forward. From a perspective of how our O&M is going to compare to this lower year, I think, we’ll continue to manage it well and stay in an inflationary range and continue to try to drive earnings through good cost management.

The good news is Punxsutawney Phil saw his shadow today.

That’s good. I think that’s all I had. Thank you very much.

Thanks.

Thanks.

[Operator Instructions] And I’m showing no further questions at this time. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.