Q4 2019 Earnings Call
Welcome.
Fourth quarter.
Earnings call.
Conference is being recorded.
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The conference Mr. Brendan.
Go ahead Sir.
Good morning, Thank you for joining us on our fourth quarter in your in 2019 earnings Conference call.
This call is being webcast live in a replay will be made available later today. After our prepared remarks, we'll be happy to take your questions.
Statements made during this call that might include one gas expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provision of the securities Axis 93, three in 34.
Actual results could differ materially from those projected at any forward looking statement for discussion of factors that could cause actual results to differ please refer to Russia she filings.
Joining us on the call. This morning are care, Longhorn senior Vice President and Chief Financial Officer.
To start going senior Vice President commercial.
I'd now like senior Vice President operations, Pierce, Norton, President and Chief Executive Officer.
Now I'll turn the call that would occur.
Thanks, Brandon Good morning, everyone and thank you for joining us today.
Net income for fourth quarter, 2019 was $51.2 million or 96 cents per diluted share compared with $44.7 million.84 per diluted share for the same period last year.
Our fourth quarter results reflect the $16.3 million increase in net margin, including new right in our service areas and residential customer growth, primarily Oklahoma and Texas.
Operating cost for the fourth quarter were $133.9 million compared with $123.8 million in the same period last year.
Moving to the increased for employee related expenses and bad debt expenses.
While our bad debt expenses down slightly through mid year. We ended the full year with a slight increase relative to 2018.
Net income for 2019 was $186.7 million or $3.51 per diluted share compared with $172.2 billion or $3.25 per diluted share in 2018.
Net margin increased $45.7 million due to new rates in our service areas residential customer growth in Oklahoma and Texas.
Higher volumes from transportation customers in Kansas.
And higher sales volumes now what a normalization in Texas.
Operating cost for the full year 2019 were $18.5 million higher in 2018.
Merely due to employee related cost and minor increases and show operating costs, including outside service costs materials for pipeline maintenance activities, we call legal related costs.
You mentioned bad debt expense.
Other expense net decreased $8.4 million from the prior year due primarily to earnings on investments associated with our nonqualified employee benefit plans, which offset the cost for these plants included in operating costs.
After netting these earnings against the associated expenses operating costs increased 2.5% from the prior here.
Interest expense was up $11.4 billion relative to the prior year due to the refinancing of $300 million a senior notes in the fourth quarter of 2018, that's $400 million at senior notes at a higher interest rate.
Our full year 2019 income tax expense includes a credit of $12.8 million for amortization to other regulatory liability for excess accumulated deferred income taxes or 80, I T, which is offset in revenues.
Capital expenditures at Alphatec removal costs were $121.2 million for the fourth quarter.
Our total for the year to $465.1 million.
We ended the year with an average rate base of $3.62 billion.
42% about in Oklahoma, 29% in Kansas and 29% in Texas.
Authorized rate base, which is right that's reflected in completed regulatory proceedings, including full rate cases, and interim rate filings has approximately $3.53 billion.
Well I guess ended the fourth quarter with approximately $183.5 million of capacity under our commercial paper program.
In 2019, we were a cash taxpayer for the first time with payments of approximately $30 million.
In January the one gets board of directors declared a dividend of 54 cents per share an increase of four cents for 8% compared with a previous dividend of 50 cents per share.
We expect the average annual dividend increase to be 6% to 8% between 2019 and 2024 for the targeted dividend payout ratio of 55% to 65% of net income.
Last month, we announced our 2020 earnings per share guidance at $3.44 to $3.68 per share.
Our 2020 capital expenditure that asset removal costs are projected to be $475 million and what were named primarily focused on maintaining the safety and reliability of our system as well as existing service to new areas.
We will also continue to make investments in technology to increase efficiencies and improve the customer experience.
Embedded in our five year financial guidance is a forecasted average annual increase in operating costs of 2% to 3%.
We anticipate that financing needs over the next five years at $850 million to $900 million, but approximately one quarter about being equity.
Our forecast at five year EPS growth rate is 5% to 7%.
Compared to our previous forecast at 6% to 8%, what's what's the guidance we provided last year for those net income and MPS.
For the first time since becoming a Standalone company, we're planning to issue equity over the next five years and have refined our long term growth rate to focus specifically on TPS.
Our earnings outlook hasn't changed significantly we anticipate that our net income growth rate over the next five years will average between six and 8%.
Now I'll turn it over to Cartus Donna for regulatory update Curtis.
Thanks, Karen and good morning, everyone, let's begin with Kansas In November 29 Gene You, Kansas Corporation Commission approved Kansas gas services request for interim rate relief.
Under the gas system reliability surcharge or G. Srs writer for $4.2 million.
Which became effective in December.
Oklahoma, we anticipate making a performance based rate change filing this month.
Oklahoma natural gas will request an increase in base rates.
Proved it will be the first rate increase in Oklahoma since early Twentys 16.
New rates are expected to be effective August 2020.
As required by or tariff, we will file a full rate case in 2021.
And finally in Texas, Texas Gas service filed a rate case for all customers in the Central Texas and Gulf Coast service areas.
Requesting to consolidate the Gulf coast surface area with Central Texas.
The increase rates by $15.6 million.
If approved new rates are expected to become effective in the third quarter 2020, and or number of jurisdictions in Texas <unk> decreased to five from six.
Our filing is based on a return on equity of 10% and capital structure with equity of approximately 62%.
We estimate that a 25 basis point change in our or we would change the revenue requirement by approximately $950000.
And the 1% change in equity by approximately $350000.
Now I'll turn it over to our CEO Pierce Norton peers.
Thank you Curtis and Karen.
No not team was another good year for one guess.
Very proud as a continued progress we made in 2019 on our safety metrics.
We will continue to focus on a culture and processes that target zero harm to our employees customers and the public.
I want to reiterate that in 2019, we completed our five year accelerated cast iron replacement program.
That is important from a risk reduction perspective.
Also was an important part of our strategy to reduce methane emissions.
We'll now turn our attention to other vintage pipe materials remaining in our system.
With the remaining vintage materials left to replace we still have a 20 plus year runway to deploy our capital.
We will continue to monitor and adjust our pace.
Just on the balance among risk reduction.
It would be construction resource availability.
Credit metrics and customer impact.
With the completion of a decade.
You can probably reflect on all that we've accomplished from one the first split out as a new company in 2014.
But more importantly loved her head to the opportunities we have in the next decade to implement solutions that continue our focus on safety.
Lability, reducing ambitions and organic growth.
The technology and solutions to solve the complexities of achieving zero emissions.
While providing reliable service and keeping energy affordable continues to evolve.
The next decade, it will be important resiliency and cost become part of the discussion related to achieving significant emissions reductions.
We have a great conviction that natural gas in natural gas distribution assets will continued to be a significant part of the solution.
It's the talented employees at this company that has and will continue to make it possible.
Execute our business strategy.
Hi, thank him for living out our core values and for serving our customers and communities.
Every day.
Thank you for joining us this morning at operator, we're now ready to take questions.
If you would like to ask a question.
No by pressing star one on your telephone keypad.
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Press Star one to ask a question.
Pause for just a moment to allow everyone an opportunity to signal for questions.
Well take our first question from.
It's a duty company.
Hi, good morning.
Morning, Brian.
Hey, Thank you for the.
Incremental numbers from the Texas routing filing remind us when we lost a relocation.
The last central Texas rate case for the last rate case in Texas.
Oh I wouldn't whatever is more applicable to to this current rigs.
The last one and central Texas was approximately.
2050, I think.
[noise], there's about three or four years ago.
Okay, great. So they tend to 15, approximately 15 billion.
And your increase from quest, what percentage increases that on average.
Brian I don't have that detailed data with me right here, but we can certainly gets that for you.
Okay. That's fine and you know what do you understand that you Dakota when guests in Texas regulated by the Railroad Commission versus the team. She could you just maybe characterize your relationship with would be our city.
Let me, let me back up just a second Brian we're actually first we file with with the city councils in the and the incorporated areas of those jurisdictions and then in the unincorporated areas we filed with the Railroad Commission.
So the biggest population that's affected by those rate cases arc and be incorporated cities and so again that starts at the city Council and then if it's not resolved at that level that I can get appeal to the or RC. So I would say broadly that oh, we have a very construct fever.
Relationship both at the city Council levels and what's the RC.
But I don't think there's a anything out of the norm with either of those.
Got it understood it adds up.
[laughter] have you.
Reached settlements in the past with a city council or and or the or something.
But typically we have reached settlement in those cases it has been more unusual that we don't get the settlement.
With the councils worthy RC and it ends up going to hearing so your assumption is dead on.
Okay, Great and then also well just a customer growth you know that it looks like Oklahoma and Texas or.
Her driving that growth will they be point [laughter].
My math correct for Kansas is relatively flat can you just real quickly.
Distinguish.
You know the growth profiles amongst the three stage.
Yeah, you're picking up on exactly that trend our highest growth rates are above that average.
I've been in Texas, primarily on the Austin and El Paso areas.
Both have been in really strong for a number of years in Oklahoma were right at that average maybe a little above it and you're right that in Kansas. It's a it's a little closer to flat to slightly up and the customer growth there.
Okay, Great and then I think also the 2020 guidance assumes and earned or we have.
8.2%.
And you know <unk> relative to your allow Laurel we would initiatives.
You have in place or plan to implement a you know further you know close that gap, whether it's your ongoing.
What about adjustment or were you know refinancing at lower rates or you know I guess and even worse.
More importantly, any regulatory initiatives to help up into the earned over with.
Yeah, there's there's a number of things that we try to look for internally as well as a externally as you describe.
Let me correct. One thing the first is that the or are we expected is 8.4%.
For 2020.
And so somebody initiatives that we take her first to do everything we can to be as efficient as possible at our operation. So that we are doing a good job controlling costs first.
Second we look to be as efficient as we can be in our regulatory processes. So as we make filings whether it's a full rate case or it's the interim rate filings are looking for different ways to make sure that those are is reflective as possible as what's happening in the company. So I'll give you an example of.
That could where we sought a external help the GE Srs legislation that was passed in Kansas about a year ago, which increased the cap of.
Gee Srs filing from having a bill impact to the customer a monthly bill impact to the customer 40 cents increase that cat to 80 cents and it also more importantly defined other types of capital as it relates to system safety, a physical and cyber security safety to also be.
Included in eligible for those filings.
We had our first filing under that legislation last year. It was only a partial year filing.
And Oh, we ended up requesting $4.2 million and that's what was approved.
By the commission through that process. So the impact on the customer was 43 cents per month.
And so the again that was the first one over 40 cents and that was not a full year impact so that's a process or.
And external a reach that that we sought to provide some relief from a rate perspective that has has been able to help improve those our lease overtime.
Okay. That's very helpful. When will your next cheap source filing.
In Kansas.
Sure you can do want every 365 days. So our next one will come in August of this year and that will be for capital from July one of 19 through June 30 of 2020.
Okay, Great and then just you know the U.P.S.K. here, that's now with the 5% to 7% how should we.
Kind of kind of looking at that on a go forward basis I mean is its news.
Given your recovery mechanisms or is it.
And the kind of Levelized capital expenditures forecast over the next several years.
Or will it be <unk> will vary year by year.
Given a rate case or or any other you know developments.
Hi, Brian This is Karen that you're exactly right.
Our capital spending is projected to be relatively smooth you know that that study kind of uptick of fluctuating a little bit with a weather and whatnot that regulatory activity can have a big impact on year to year swings, Oklahoma is still our largest jurisdiction we got it.
Oklahoma rate case coming out that this is a test here. So we will be filing a rate case next year and they all kind of that would have a have a significant impact on our earnings.
Okay, great. Thank you very much.
Hey, Brian This is Curtis again, just to come back to your first question on the Central Texas rate case, all in that's about a 9% increase as filed and that filing.
Thank you.
Great. Thanks.
I wonder if you'd like to ask a question. Please press star one at this time again that is star one asking question.
Question from Chris.
Jeffrey.
Everyone how are you.
Great Chris How're you.
Doing well and thanks for taking my questions as well I think I'll be quick I just had a couple for for Karen with regard to <unk> I had actually I think Miss this last night, but the fact that you know asset removal costs are a bar in the operating cash lineups and it looks like in working capital as you think of.
About the capital budget given.
How do you think you given that it includes those costs as well.
Our though I guess a question as to what you see the profile of asset removal looking like over the next couple of years is that something I know trended modestly down from 18 to 19.
Is that something you would expect to continued bearing news, maybe educate me a little bit on that side of it.
Of course, I don't expect a significant change an asset removal cost they may come down a bit this year.
Those are in part I'd estimate so as we you know fighting how we estimate does cost it may come down slightly but I don't think it'll be material. If we don't really while they get presented separately on the cash flow statement as a practical matter. We got really think about than any differently. It's all right days, it's all part of our as our system improvement so.
I have decided that perspective.
Okay that was you anticipate and my second question [laughter], because I missed the first part of it I I wanted to make sure that I was thinking about rate base additions correctly. So everything you're quoting that's the capex forecast is is embedded hopefully it's embedded overtime.
That's correct.
Okay, all right really I mean that was that was truthfully that was it for me. So I appreciate the time.
Thank you, Chris and have a good rest of your day.
Okay.
A reminder, if you'd like to ask the question. Please press star one at this time again that is star one to ask a question.
A follow up question from brain or so.
Yeah, Hi, Thanks for the fall just real quickly the notes payable balances.
216 billion a year end 2019 club.
Noticeably year over year is it will that eventually be termed out and instead included or excluded in the.
Yeah. The funding at the financing forecasts you guys laid out back in January.
Yes. It does it will eventually be turned out and it is included in our financing needs that we have provided guidance on.
Okay perfect. Thank you.
Thank you Brian.
Or no further questions at this time Mr. Love Field turn conference back to you for any additional for closing remarks.
Thank you all again for your interest in the one gas or quiet period for the first quarter starts really close or books in early April and extends until we release earnings at the end of April.
Provide details on the conference call later, they have a great day everybody. Thank you.
Today's call. Thank you for your participation you may now disconnect.
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