Q1 2020 Earnings Call
Yes.
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Good day.
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Expectations or predictions should be considered forward looking statements you know covered by the safe Harbor provision security.
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What are your southern California, There's no president and Chief Executive Officer offices.
Well this year, Vice President and Chief Financial Officer.
I can tell senior Vice President operations.
Yes.
Now I'll turn the call centers.
Thanks, Brandon Good morning, everyone and thank you for joining us.
On the call today.
Well the first time in our lifetime, we're faced with an event that has impacted our economy.
Our businesses and our daily lives.
It is impacted every person.
In some way.
There's a good chance many of the last one this call diblasi family member pork friend to.
To the cobot not seen bars.
Those people.
One gas family extends our deepest condolences.
Heartfelt set the pace.
Your sorry for your loss.
Because of the cobot not team pandemic call today will be different.
We will spend most of our time talking about how the virus and the government reactions to cobot not team has affected our business, but more importantly give you insight into our organization thought processes are dealing with uncertainty.
Care Longhorn will begin with a brief update of our first quarter results.
Said mcannally will cover the operational details.
Just on a we'll update you on the promotional environment, we're seeing and our regulatory activity.
And then care I will summarize how we view the financial impacts.
Our business continuity plan, which provides a framework during a crisis is based on three principles.
Anticipation awareness and agility.
We support our decisions around these principles with our core values of safety ethics inclusion in diversity service and bad.
As food court in skin care and give you examples.
Our current business environment.
Well I have a better understanding of the culture that is one guess.
They culture based on collaborating around two questions.
One of things are not as they seem.
And what else can lead due to solve challenges and create opportunities.
I will return later with my closing remarks, but now here's Karen, but our first quarter results scare.
Sure.
Good morning, everyone.
But oh, the nice thing has had a significant impact around the world in this country and in our service territory inside that business performed well in the first quarter ever yes, there is no material financial impact independently.
Net income was $91.7 billion or $1.72 cents per diluted share compared with $93.7 million or $1.70 cents per diluted share in the fourth quarter 29.
Our fourth quarter results, because that's an increase in that market at $6.2 million over the same period last year, because lets me rice in Kansas, and Texas and love It until September sorry.
We experienced warmer weather and 2020 compared with 20, Nike Conservative from 5 million dollar decrease in net margin from lower volumes that have weather normalization.
Operating costs for the first quarter $3.1 billion lower than the same period last year.
Hey, it's $4.3 million decrease and expense associated with the change in the value why that is far nonqualified employee benefit plans relative to the part of the yes.
Other expense net increased $6.2 million in first quarter 2020, compared was supposed to close to 21 team.
Well, it's it's about $70 million decrease and the value of investments.
It is a bit nonqualified insight into plan.
Combined and net impact of a nonqualified employee benefit plans or the beacon to pre tax income on a $2.4 million in first quarter 2020 or 29.
Our capital expenditure output level cost increased $29 million this quarter compared with the fourth quarter last year.
From start to the year sets as well as we continue to execute our capital plan. During these challenging time.
[laughter] capital spending will be about $475 million for the full year.
Yesterday, the one gas board of directors declared a dividend of 54 cents per share unchanged from the previous quarter.
This dividend is consistent with our guidance for 2020.
And now I'll turn it over to submit to now to the in effect on the operations related [laughter]. Thank you Karen and good morning.
Oh business continuity plan allowed us to quickly establish a cross functional pandemic task force representative of the entire organization.
And to initiate daily Task force and senior leadership meetings.
Collectively we developed the multi tiered response plan, but a Josh how we work based on the risk level or virus related activity in our operating areas.
This framework focused on the most critical areas of the crisis, the health of our employees and customers.
So I can critical data.
Deploying employees to work remotely where possible adjusting field operating protocols and monitoring our supply chain.
I'll provide more context around each of these five critical areas.
First safety continues to be our top priority, which is why we established employee coded 19 protocols.
At the onset of the Coke 19 outbreak in our service territories, we began directing employees with potential exposure or flu like symptoms to an independent medical advisor for screening process. They determined to be employees should self warranty consult with a position or could safely returned to work.
The screening process has made a significant impact on ongoing health and safety of our workforce.
Initially quarantine, 7% about workforce based on this process and today that number is less than 1.5%.
Approximately 20% of our workforce is used to screen service.
As of April 23rd we've had a total of 26 employees, who is tested for the virus explore employees testing positive.
We're pleased to report at this time, we have no hospitalizations or fatalities from cold at 19.
Second we've been tracking critical data every day.
Provided they reports to the organization summarizing Cobiz 19 related cases on the national and state levels as well as one gas an employee data.
As we watch trends in our own operating areas.
We also established especially were killed.
To capture coated 19 related expenses, such as personal protective equipment, the cost of sanitizing high use work spaces and vehicles and medical advisory services.
We're also seeing decreases and other expenses such as travel.
Third we could be deploying employees, who could work remotely over a three day period.
We currently have approximately 50% of our 3600 employees working from home.
Prior to the pandemic, we were in the process of deploying always on virtual private network to company owned devices as part of the cyber initiatives to further project our assets.
This allows our employees to easily and securely access all of their systems and resources as if they were physically sitting in our offices.
All of our systems, including Internet bandwidth our operating normally.
For employees, who continue to work in our facilities, we reconfigured work spaces to allow for appropriate social assistance.
Fourth we have made operating adjustments for our field employees.
We have two goals in mind adjust to avoid customer contact where feasible.
And not feasible protect our employees and the customer.
Just a spends an elective work that result in planned customer outages, which would have required us to enter customer homes.
Our call center personnel or screen, all customer service orders to determine possible coated 19 exposure in the premises and we perform further screen when our service technicians arrived on site before deciding to enter the premises.
We've adopted additional personal protective equipment practice is based on recommendations from centers for disease control and the occupational safety and Health administration.
Narrowly focused around the use of respirators and calls masks.
Employees are not allowed to enter a customer's home, where there is a known possibility of illness or exposure to covert 19.
Yes, responding to an emergency or an outage.
In those cases additional personal protective protocols go into place, including a disposable full body suit and the presence of one of our safety trainers.
All other customer appointments, our employees are practicing social dispensing and wearing the appropriate PPD, including respirators.
We currently have an adequate supply respirators, and 95 masks and continue to monitor RPP supply closely.
We're also screening for elevated temperatures and our large service centers and we are in the process of installing automated thermal image temperature screen stations to be deployed at certain locations to allow entry only to those employees, who do not have an elevated fever.
Finally, we're closely monitoring our supply chain.
Today, we have not experienced procurement issues and we have adequate inventory on site for all operations and related activities.
Pricing has not been impacted to date, but certainly could be in the future. So it is one of the factors we continue to monitor.
Our supply chain group has long standing contract tax with severe significant manufacturers in our sector and it's been in close contact with them to review their operations and create redundancy where possible.
With respect to the supply of natural gas our supply portfolios include the diverse group of suppliers and storage providers.
We have not experienced and do not anticipate issues with acquiring adequate supplies of natural gas to serve our sales customers.
And now I'll turn it over to Kirsten.
Thank you said and good morning, everyone. My first comments will address the impact of Cove at night gene on our commercial activities followed by the regulatory update.
Across all three of our states orders issued by the Governor's related to cope with Nike declared construction and the central business.
Construction activity with our builders and developers has remained robust through the first four months of 2020, including single and multifamily construction as well as commercial developments.
We had anticipated a slowdown the city permitting offices were closed but the backlog of permitted process projects has allowed construction activity to continue and we're not seeing any significant impact from the pandemic.
As is typical in all years, we've seen some project delays, but these have been offset by new projects that are moving forward.
Accordingly, we are maintaining our expectations for growth capital project spending.
[noise] continuing the trend we experienced in 2019, our customer growth rates for sales customers remained strong.
The moratoriums on disconnects had a slight impact on our first quarter totals, but we have not typically had a large number of disconnects during the first quarter.
With the disconnects moratoriums extending to May 15th we will see higher customer counts in the second quarter that are not necessarily reflective of higher growth rates in our business.
We have approximately 12000 transport customers on our system that represented $114 million were 12% of our net margin and 29 team.
Our 40 largest transport customers account for 28 million or 25% of our 2019 transport revenues.
To date two of these customers wanting the automotive industry and want and the residential shingle business have temporarily suspended operations.
Outside of our 40 largest transport customers. We have also had 19 other businesses that have reduced operations were temporarily or permanently suspended operations.
Collectively we anticipate a negative impact to revenues of approximately $100000 per month from these transport customers based on their current level of business activity.
Although we have suspended disconnections for delinquent accounts until may 15th we continued to contact our customers that have perhaps do accounts to offer flexible payment arrangements and have late late payment fees in an effort to help our customers affected by the pandemic bring their accounts current.
We have also been working with our regulators to issue accounting orders to allow for the establishment of regulatory assets for the impact of Cobot 19 on our business.
These orders generally allow for the deferral of pandemic related expenses, including increased costs for bad debts personal protective equipment.
Facility Sanitization cost medical advisory services costs for testing in that and treating employees that have potentially been exposed to fill that 19.
And other necessary cost to address the impact of the pandemic as well as certain lost revenues.
The Railroad Commission of Texas has issued an order and we're working with our regulators in Kansas and Oklahoma to obtain similar orders.
Moving onto our other regulatory activity.
The Oklahoma, Oklahoma Natural gas filed a performance based rate change filing in February requesting an increase in base rates of $11.8 million.
Approved it will be the first increase in Oklahoma since early 2016.
New rates are expected to be effective in August 2020, as required by our tariff we will file a full rate case in 2021.
In Texas, Texas Gas service filed a rate case in December 2019 for all customers at least central Texas and Gulf Coast service areas requesting to consolidate the Gulf Coast service area with Central Texas and increase rates by $15.6 billion.
If approved new rates are expected to become effective in the third quarter Twentytwenty and there are number of jurisdictions in Texas will decrease to five from six.
Our filing is based on the return on equity of 10% at a capital structure with equity of approximately 62%.
We estimate that a 25 basis point change in early would change the revenue requirement by approximately $950000 and a 1% change in equity by approximately $350000.
Texas guest service also made a guess reliability infrastructure program for grip filing for all customers in the West Texas service area for a 4.7 million dollar increase.
We anticipate that new rates will be effective in the third quarter of Twentytwenty.
And now I'll turn it back to Karen.
As you heard from said incurred I think my team has not impeded our work in the field, including our capital spending on those system integrity and growth projects.
To summarize what you've heard regarding how our earnings are being impacted by Kevin.
We expect a reduction in revenues from customers temporarily primarily impacted by the pending.
Thanks, higher bad debt as a result of in moratoriums on disconnect.
And we expect to for incremental expenses for other Hogan 19 related costs.
We also expect reductions of expenses in some areas.
Travel.
With respect to our sales customers accounted for over 86% of our net margin for the first quarter 2020 pretty close to the customer growth. We have continued to remain strong.
Never 70% of our net margin coming from fixed charges, our exposure to volume metric with just wanted to.
Maybe accounting orders that we have we expect to receive any state will allow us to seek recovery and future proceeding incremental expenses and certain lost revenues associated with Kevin.
These accounting works are expected to mitigate the impact of lost revenues and net increases in expenses earnings. However, I would now expected to be deferred for later regulatory recovery under the accounting orders mesquite probable of recovery in order to be recorded under generally accepted accounting.
As a result, there could be a delay in the recognition for financial reporting purposes of announced that may ultimately be approved for recovery until the conclusion of future regulatory proceeding.
Based on what we know currently we are affirming our guidance range with net income is expected to be in the range $186 million to $198 million or $3.44 to $3.
Yes.
Chair.
However, our downside risk.
Earnings associated with the impact of covered 19.
And could result in net income in earnings per share at below the midpoint range.
From a liquidity perspective, we expect lower cash flows, resulting primarily from the effects of the moratorium on disconnect.
At March 31st 2020, we had short term liquidity available through our commercial commercial paper program and cash on hand totaling $235.2 million.
We had a 700 million dollar credit facility to support our commercial paper program and actually want to $50 million aftermarket program for the issuance of equity.
And earlier this month, we entered into a second revolving credit agreement provides an additional 200.
Liquidity over the next year.
Hi, there are investment grade credit ratings and strong balance sheet provides access to the financial market for the issuance of long term debt and equity we believe our fortunes of liquidity are adequately support our current planned level of operation.
Now I'll turn it over to peers.
Yes.
Thank you, Ken Curtis and said imposing today I'd like to thank all the medical staff in our service territories for the Q brought work they do especially during this pandemic.
Also want to send our appreciation to the first responders on the front line.
Firefighters law enforcement paramedics and utility workers.
They to deserve recognition for the critical life services they provide everyday.
Thanks to the diligence that each one gas employee to the pandemic protocols.
And our focus on our core values, we've been able to continue running our business with minimal disruptions.
Streamlight proud of our employees.
And want to give a special thanks to each of them for their continued professionalism under stress.
When theres no clear in poise in the face of uncertainty in more courage to do the right thing.
We are fortunate to work in an industry that strives to make every natural gas utility better through collaboration.
Once again, our trade organization the American gas Association organize calls the subject matter experts that are proving to be beneficial to navigating this process in real time.
Thank you AG for what you do.
As a natural gas utility we have an important role in serving our communities and our customers.
And that includes taking the necessary precautions to protect ourselves and the people around us.
We will get through this 10 dynamic by relying on the same values, we used to address any challenge we face in our business.
Thank you all again for joining us this morning, operator, we're now ready for questions.
Good question on today's call.
Keith.
And we'll go first.
Good.
Hi, Good morning, it's actually Konstantin here for a for sure.
That was a very thorough so thank you very much on.
I understand the challenging times, where we're all in.
So one of the question, but we had was.
Understanding.
First quarter results.
Represented a lot of weather headwinds in there from potential slowdown.
Related to coal that.
How are you guys thinking about kind of under a return to normal weather scenario going forward for on your sales forecast and kind of growth numbers in terms of customer counts and in general that's throughput and does that require any kind of.
Regulatory we thinking or whether it's like regulatory outcomes to realign future earnings.
I was thinking about that.
Yes, so I'm sure.
I'm, sorry say this again, you're sitting in for sure I. So.
Yes, it's a coffee.
Great. Thanks, Scott.
So a couple of things the.
We.
Then in the moratorium with the disconnects.
That the normal activity that we would be starting this time of the year, we haven't at this point and.
That suspended until at least may 15th so even if we get to that point than those moratoriums and on that date. It will still take a period of time before we would ramp up to our normal operations and our customer service groups as well as in field operations to deal with those so like my comments earlier about.
Seeing perhaps some elevated numbers in our customer account, that's really what I was trying to address with that.
Got a couple of other comments on there I believe about one related to how we're thinking about weather.
And.
As you know we have weather norm and all of our service territories and you saw that in the results that while we had much warmer weather.
In the first quarter and it did impact our sales volumes that was partially offset due to the impacts of weather norm. That's really what those mechanisms are designed to achieve so when we give guidance whether it's as we think about it for the balance of a year or we're giving it at the beginning of the year, we always assume.
Normal weather embedded in that guidance and then you will see some pluses and minuses from that as we go through the year as weather does vary.
Was that all the items in your question.
Yes, the answer that one I guess, the shifting a little more long term view on regulatory outcome and are we at the of consolidating that they trend and filing rate cases.
Where these people are trending specifically kind of understanding that there are there some systematic or are we gap.
What kind of having capital deployed and.
Getting.
Well a couple of every single cost.
With that kind of standing to improve with kind of this next round of weight cases 20 2021.
Yes, so a couple of points there the first one as I mentioned in my in my prepared comments.
The rate case or the PBR filing that we have in Oklahoma right. Now this will be the first rate increase in Oklahoma sense.
The beginning of 2016, so that's been a number of periods. Since we've had it had an increase there and the MTS of whether it's a grip filing Reggie Srs or a coaster these different mechanisms that we have.
What those represent or aren't or smaller filings that are meant to get more timely recovery of the capital dollars that we're spending so we do.
Continued to see those helping to close that gap and to get more timely recovery. So as an example of that again pointing to Kansas, where we have the new GSR S. mechanism that we filed under for the first time last year you might remember that was only a partial period. This year will be the first year that a cover.
As a full 12 month period, and there's more capital that's eligible.
That in that mechanism today than there used to be.
And so.
We've talked about how much of our capital is subject to annual filings in the past that's been about 80%, but now what we're giving guidance to is at about 90% of our capital is recovered through or address through annual filings.
So all of those things are helping to to continue to progress as we have been over the past six years.
Okay, Yes, that's very helpful model.
Thank you.
Yes.
Good morning.
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My first question.
Oh, that's roughly 72%.
Thanks.
Could you discuss how it fluctuates luxury.
The year what percent of fixed charges.
In Twoq.
Hey, I guess this is curtis.
You know, we never have broken out our guidance by quarter like that to separate out those pieces I think you could probably do a top level because we do report our our volumes.
Each quarter by the different types of customers that we have as well as we provide what the fixed charges are for our sales customers I just on the back then I'll follow up at all have that data.
Year here with me, but if you're trying to get at.
An estimated that that probably be the best way to do it but just a few broadly think about it.
Margin as you go into those lot lower volume metric months is going to be higher so your second quarter and third quarter. Your volume metric charges are going to be less the fixed charges are going to be a higher percentage of the total that margin.
But.
If you look at our past history.
Whether its quarterly or annually you don't see a lot of fluctuation due to those volume metric differences.
And then.
In fact from social thing.
If you are pending cases.
For both.
Trackers is there risk that commissions were delayed decision.
Gotcha.
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Yes in one instance, we have I get in our Central Texas Gulf Coast consolidation case.
Before the hearing date before the L. Jay was extended until May twentyth and that was due to.
The Texas regularly RC.
Basically moving to a working remotely situation and the desire not to have that hearing.
As a virtual hearing and so the anticipation is or that there was a new procedural schedule that was approved and that extended all of those dates by about a month. So we have seen a small impact that's the only what I could I'd point you right now.
Next question.
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Equity.
What did the target.
Yes.
This year.
Good morning, I know this is Karen.
Our guidance.
Yes.
You mean done equity this year, we have nothing more specific about seeing now.
Timing of that.
The additional liquidity that we got through our 250 million dollar revolving credit agreement earlier this month.
The luxury if you will be opportunistic.
The market.
Yes.
Thank you.
Yeah.
Thank you I hope you're sites as well.
Well go next to Chris.
With Jefferies.
[noise] 18, good morning, Thanks, very much for that paid I think that detailing all the ways. You have responded and budgeting for co. Good exactly what our team was hoping to you'd really this morning. So I do appreciate it I get a couple of quick follow ups, I think probably 2% and maybe two for Karen.
Did I know you historically reliance on Nonemployee contract labor in the normal cost of course of operation I may have missed this in your prepared comments I apologize, but good but can you just touch on that element of the operations and and if you have suspended those folks what to pathway you're thinking about for <unk>.
Turning them to to working for you.
Yes sure Chris Good morning, Thank you for the question.
You're right, we do rely on external contract labor.
But we were able to coordinate pretty closely with our contractors as.
As this risk emerged.
Not only the check on their hills from an execution standpoint, but also to look at their safety practices to look at their PE practices.
And we were able to execute as you heard from Karen.
Capital plan year to date in a way that.
Suggested that process was a success, we don't anticipate constraints going forward, we make room for that we plan for that but right now we don't anticipate that being an issue for us going forward.
Okay, and I know you know everybody's talked this morning, and Karen talked in various talked about as you mentioned the maintenance capital plan for the full year. So it seems like bought some projects maybe not happened in other projects are available to fill that void, but you also talked about some of the.
Operational changes to coded you know adoption of technology from a worsening conditions and I guess I'm. Just curious as you think that maybe you know the longer term set up.
Yes, its operating teams and structure.
What kind of any of the things use instituted.
[noise] here in response to the virus might be more permanent in nature, I'm imagining world in which you're going to see some efficiency gains through being forced into you know rapid adoption of some of the stuff and I'm. Just curious I bet you know I know, it's early days with how you've thought about it.
Potential longer lasting impacts from that.
Is there a number of things we've seen Chris.
Todd and over the top.
Has been increased communications.
Because we were working remotely in many environments.
Via the communication required to be sure that we will align from management standpoint.
We found to be really effective and I would anticipate that always feel like we were an organization that communicated very efficiently.
And often but we've learned that the additional communication has been even more helpful. I think we'll continue that just speak specifically to some practices.
We have but going to do some training remotely.
Using cameras that has been effective and efficient I think we will continue to do that where its appropriate.
We have.
Earned some.
Some things about how to best utilize PPD.
And how to train around that we stepped up our training considerably to be sure that our employees have been the knowledge they needed and we felt like it was adequate before but we wanted to go above and beyond in this environment I think weve found ways to be more effect is doing that training.
We've also made.
Made some improvements in our supply chain. If we were trying to manage that risk. So we've done in touch with our suppliers as I mentioned in the prepared remarks.
But to do a bit more specific one of the things that we've done is not only looked for redundancies, but also probe our contracting partners a bit on their own supply chains.
To make sure that we didnt how level two suppliers that we're feeding them.
With some critical element that might be a shortage that they have not fall over they had not seen and I want to thank our supply chain group. They have really done outstanding work not only identifying additional PPG resources and we have seen no lack of P.D., we havent had to throttle our work you too.
None availability of P.D., but they've also works with our suppliers, who keep our normal work channels flowing and we have not seen constraints, nor do we anticipate any at this point.
Okay. That's really great take you through those and then just from kind of I guess switching gears a little bit I do you have to finance related questions.
And if you could just remind me the I've asked you about this in the past.
I simply forgot about it this this past quarter, but.
The nonqualified benefit plan performance and how that affects your other income line can you just maybe remind me what you had incorporated for that in initial financial guidance for the year just spend a sense. It maybe the magnitude of initial quarter Delta.
[noise] similar to how we get started gather in our guidance.
We assume normal weather for our guidance and also I would say kind of a normal level you are performing well.
Thanks.
Give me a little bit of perspective, if you go back to their history. It's time for one gas you look as I mentioned that we have that.
The cost of the liabilities as an operating costs and many assets against that.
Other income.
On an annual basis.
That net income or expense has fluctuated Brian positive.
Extensive 2 million to income of 1.3 million.
Over time, the fluctuations are not significant you can see between from quarter to quarter for hearing here like we saw in the first quarter.
Obviously the markets had improved host March 31st that we expect that we will get some attack that we basically it's too.
Lastly, as performance from it.
Okay. Okay, no that's out that's helpful and and when you record, though is I know there's some of your peers. It also flagged this because it's a more regular or larger ticket item relative to the size of your company and when they quoted they quoted.
The same number pre and post tax is that true for you as well or is that when you quote another income impact.
When we think about any P.S. and back to tax effect that.
You would attack the second quoting a pretax number.
Okay.
Okay, and then finally, you touched on some of this but and I get the fact that the accounting rules make it seems like my interpretation of what you said in prepared remarks guarantee that you may.
Not give yourself credit for some of their regulatory things you're pursuing and then upon formal recognition by the regulator it may be reversed out and so.
Outcomes, maybe improve subsequently did I understand that correctly.
Yes.
That could be some great I thought we only have an accounting order and one say for weighed on the other two but there could be sand some great and determining what is.
Can be deferred and for those accounting motors and I think bad debt expense.
Sample it maybe difficult to determine specifically what is causing related versus what is normal bad debt.
And we'll get a gray in that and then as you said for accounting purposes, we got to be able to determine that does any regulatory asset we established.
Although a recovery.
And again, there maybe some interpretations of the order that.
Ultimately, we make prevailed that foreign account from an accounting standpoint, we have them at the hurdle to be able to record.
Good.
Okay. Okay, you actually hit on something that was more curious about which is that clearly you have service territory that overlap with production regions crude and natural gas natural gas production regions and we're seeing a fall out there certainly in activity levels unemployment levels.
It's totally unrelated, but it's not maybe exclusively tobin related and so I'm just curious maybe how you guys think about.
The.
The program I guess as as structured and you can see by you today I know that to understates, having it approved them, but how is how that might have a demarcation line might be treated its a tricky question, but I was just anything you helpful.
Yes, let me just peters with any.
Kind of attempt to answer your question and then I'm not sure I'm going to get to do adjust this here, but as it relates to the supply in the price and those kind of things.
We clearly benefit the customers clearly benefit from lower price environment, but it can actually get become too low bid is not beneficial to the S&P community and the midstream community.
And it's definitely approaching some of those areas, especially as it relates to crude oil.
Having us be in those areas and be a net exporters of natural gas from from our states of the primarily the name months, Texas and Oklahoma.
You're always going to kind of take care of your needs first in the state. So I would see if if there's any reductions it's probably going to be the reductions that go to other areas of the country not necessarily in the areas that we consume.
We're also going into that them the year for us that a gas comes.
Come down, but it also goes up or the electrics during this time of year.
So.
All been through at least most of us have been in the midstream side of the business before been through these downturns and as it gets too low they do definitely take the rigs down.
The supply then start.
Just to get a little bit the strain and then the price then comes back just having lived through something like this in West, Texas. When I was there back in 1986, nothing press, a little got down to $10 apparel. So.
Those of US were old enough on this call have seen this movie before.
Probably not complicated a little bit, but probably it's more basic supply and demand on that side of the business I'm not sure answered your question, but.
Yeah. We I know my question was more related I guess tears too bad debt side of it you know the fact that you have customers and your search service territory that have hardships because its coded because if you know stay at home practices and what that did to their business non energy business. You know Curtis mentioned some of your transport customers.
Had either temporarily or or Indeterminant period of time suspended operations, but you also have a lot of customers who are.
OID body oil and gas industry, which is suffering its own issues right now which are partially related to covert partially not going so that's that's I guess, what I was trying to get get your parent was mentioning okay. You know if it stems to kobe or doesn't stem to kind of it and just some of these issues. It seems like in your service territory, a little bit more tricky.
Let's I, let cartus answer that question and in particular, I didn't talk a little bit about how the bad debt.
On the.
Side of the as the gas costs flows through.
Two RPG a and then he can answer the other questions well.
Yes, really superior 6.22 pieces of that Chris.
In anytime we have bad debts.
In all three of our states the portion that's attributed to the gas costs.
Doesn't actually get expense that becomes part of our purchase gas cost adjustments and so that didn't get to rebuild through the normal gas pass through mechanism that's in place.
What we're talking about what these accounting orders is the ability to defer the non gas costs portion of the bad debts and so each of our our rate back to our rate filings.
In the cost of service it will identify a level of of bad debt expense as part of that cost of service. So what we would be looking at is during this time, what's the cause of the increase or what is the increase in our bad debts compared to what.
Built into our cost of service as I think thats really the starting point to have those conversations.
With our regulators and as we're thinking about what that means of what can be attributed to the impacts of cove and whether it's directly to one of our customers. That's a that's affected or its indirectly because of what's happening in their business being shut down due to cobot 19 or other factors.
I think that way gifts the karen's comment earlier about its a little bit of the grey area and we're just have to work through that with our regulators and we are visiting with them frequently both on whats happening from an operation standpoint.
Instead, its group as well as what we're seeing with our customers and what's happening from a customer service Stan.
Okay that was also thinking it was very helpful.
That's it that's what had Chris it's also get.
This is also good chance or remind everybody that in Texas.
Two thirds of our customer base in rate base is in El Paso and in Austin and those are two areas that are probably the least impacted.
By the down oil and gas is related to loss of jobs.
Okay, well, thanks, a lot for the time to have it took a lot. This morning and I appreciate all the comments.
Thank you.
Richard.
Thanks.
Hey, good morning, Thanks for taking my question hope everyone thing they add there.
Just following up on Mama last kind of question on bad debt.
Bad debt expense increased.
20 million in one case, there's plenty 19 and looks like in 2019 and adapt.
1.5 million altogether, just curious how much bad debt expense you currently have in rate and what kind of parameters are you looking at from a full year incremental bad debt and getting the pressures.
[noise]. So this is Curtis Richard it I'll attempt to answer that.
First off we Didnt have the accounting order in Texas yet.
As of the end of the first quarter, so everything that happened in 2019 or in the first quarter of this year is obviously.
Pre any impact of that accounting order and you're really getting at the heart of the point that we'll have to work with our regulators as as we look to record.
Amounts into those deferred assets the theoretical approach as to how we would do that.
But again, if you can look at kind of our normal year to year levels of bad debt expenses to give you a sense of what would be.
Built into our into our cost of service, it's not always the same way quantified in every jurisdiction. So for example, it might be the bad debt expense. It was in your test year in won't situation added another cost of service it might be a three year average so there's different ways that those get established.
But.
So again, we'll just have to work through our regulators to come to what's the right amounts to differ as we work through that.
Got it. Thanks, that's very helpful. And then just in terms of B O N. N side, you can look increase in bad debt expense you had the.
Non qualified pension.
I guess.
Some of those calm down.
Just curious if there's any ability to manage your own end profile relative.
And inflationary increases that you're expecting to kind of offset some of these little bit related pressures, whether it be on a revenue or <unk>.
So what you this is peers.
We actually will manage through this the same way that we always do.
We have our internal labor, which is defined by the headcount we have outside service labor.
We have a certain percentage of our internal labor Nx external labor that's actually a.
George to the capital piece and then overtime.
So all big picture all four of those.
Moving parts is really the way that we'll manage its the same way we manage it.
You know through through normal times.
And like I said said is we we've intentionally went into this and then make knowing that certain things that we do will be different operationally and so we are targeting to come out of it having identified those things that we don't want to change the coast.
Learned enough during the pandemic that we do want to change your operation. So I do anticipate that there's there's some opportunities for us there.
But the big picture is we manage with those those four levers.
All right got it that's very helpful. That's less now that the lab.
Thanks Richard.
As a reminder task.
On today's call that.
And your telephone keypad.
At this time, there's no response.
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Thank you all again for your interest in one yes as noted on our earnings news release, an updated investor presentation is available in the Investor Relations section of our website.
Our quiet period for the second quarter starts may close our books in early July and extends until we release earnings in late July will provide details on the conference call later date and have a great games Stacey. Thank you.
This does concludes today's conference we thank you for your participation.
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