Westar Energy Earnings Call Insights: Sales Growth Rate Outlook and FERC ROE Matters
Sales Growth Rate Outlook
Greg Gordon – ISI Group: So, it’s good to see that you’ve raised the bottom end of the guidance range, but at the same time I do think investors are probably a little bit concerned that you’ve lowered your expected overall sales growth rate for the year. I think you’re trying to directly address that issue by focusing on the headwind coming from these three specific customers, and I think you’re also trying to give us maybe some non-specific indicative guidance on sales growth trends into ’14. Is it fair based on your non sort of quantitative commentary that you would expect some growth in ’14 given what you’re seeing today, and can you give us some more meet around that if that’s in fact accurate?
Tony Somma – SVP, CFO/Treasurer: Yeah, this is Tony. That is correct. We would expect these customers, at least, three large ones that I mentioned to kind of get back to previous levels by ’14. So, that in and of itself will help our sales. Additionally, we are seeing, as Mark mentioned, residential building permits picking up, and there’s some opportunities on the industrial side on the pipeline with Mars and actually some other pipelines coming into our service territory. So, we haven’t quantified any of that yet. That’ll get quantified obviously when we do our year-end conference call.
Greg Gordon – ISI Group: Second question is for you Tony. There’s been some debate as to what your thought process is vis-a-vis timing on equity. I know you’ve satisfied your equity needs for the near term with the forward sales that you’ve already done, but you’ve also indicated the need for equity at some point prior to filing of your next major base rate case and investors are wondering whether that means you’re going to issue equity, let’s say sort of late ’14 or whether you think market conditions are such that you might entertain the idea of a forward sale. Can you comment on our strategy around equity?
Tony Somma – SVP, CFO/Treasurer: Greg, I think you kind of look to what we’ve done in the past, and you’re right, our CapEx program is large and lumpy and we’re bringing on a major environmental upgrade, our share at LaCygne and that’s going to require equity at the time we set rates, and so we could do that various ways that we’ve done in the past and we haven’t really decided whether we’re going to wait until 2015 to issue equity or we can also price equity today and settle later on.
Mark A. Ruelle – President and CEO: But in any event, you should see us finance our Company in a way consistent with the cost recovery of those projects. If you look at our practice in the past, we and our regulators recognize that, that capital has to be paid for in the cost of service and not absorbed by our shareholders.
Greg Gordon – ISI Group: So you are not prepared at this point to give us any sort of tightened visibility on whether you’ll do that for a forward sale or wait and do an equity offering in the more traditional sense? More around the timing of the rate case?
Tony Somma – SVP, CFO/Treasurer: I think you look at our past behavior it’s pretty transparent.
Greg Gordon – ISI Group: One final question. You’ve talked a lot about on the call how much you have been doing to optimize the cost structure, both through operating cost reductions and through accessing the capital market to reduce interest expense. Should I also extrapolate out into the future that we should see continued positive momentum on cost?
Tony Somma – SVP, CFO/Treasurer: I think the world around us will dictate that behavior and we see ongoing cost management as one of the dividing issues between companies that adapt and those who don’t. Our employees are pretty tuned into the things it takes to keep our company successful for the long term.
FERC ROE Matters
Shar Pourreza – Citigroup: Just one question as your forward spending outlook starts to shift away from environmental-related spending more to transmission and distribution. I am sort of wondering how closely you are monitoring the FERC ROE matters in the New England area and how that could impact your plans to build more high voltage lines and whether you see that issue, I guess seeping over to the SPP region?
Tony Somma – SVP, CFO/Treasurer: Well we are certainly monitoring closely and it’s not a well-guarded secret we know what those impacts are and. I would say it this way, which is the way I’ve described it to the FERC commissioners which is the FERC policy has been one that they’ve done very effectively to increase the construction builds for transmission in this country. Its where that I say the government is doing a great job but they’ve done a great job in that, but they control the throttle on how much of that capital gets dictated to other ways of keeping the lights on versus transmission. So, for example, if the capital is more valued and dear in the transmission business, that’s where we’ll spend it, but you can keep the lights on, on other ways albeit more vulcanized with more generation, more distribution, more localized investment or you can do with transmission or a combination of both. Our capital will go to where it’s most valued.
A Closer Look: Westar Energy Earnings Cheat Sheet>>