The Empire District Electric Company Q4 2008 Earnings Call Transcript

| About: Empire District (EDE)

The Empire District Electric Company (NYSE:EDE)

Q4 2008 Earnings Call

February 6, 2009 1:00 pm ET


Jan Watson – Secretary & Treasurer

William L. Gipson – President, Chief Executive Officer & Director

Gregory A. Knapp – Chief Financial Officer & Vice President Finance


Anthony Crowdell - Jeffries and Company

Phyllis Gray - Dwight Asset Management

Timothy Winter - Jesup & Lamont Securities Corporation

[Unidentified Analyst]


Welcome to The Empire District Electric Q4 earnings conference call. During today’s presentation all parties will be in a listen only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, the 6th of February, 2009. I would now like to turn the conference over to Jan Watson.

Jan Watson

Thank you for joining us for The Empire District Electric Company’s teleconference to discuss the company’s operations and to review the financial results for the fourth quarter and 12 months ended December 31, 2008. A live webcast of this call is available on the Empire website at

Given our presentation this afternoon will be Bill Gipson, President and CEO and Greg Knapp, Vice President and CFO. A Q&A session will follow the presentation. Our press release announcing fourth quarter earnings was issued yesterday afternoon. The press release may be accessed on our website or a copy can be emailed or faxed to you by calling 417-625-6142. A telephonic replay of the call will be available for two weeks by dialing 800-405-2236 and entering passcode 111125524#. The webcast will also be available for replay on our website.

As always, certain matters discussed in this call are forward looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements address future plans, objectives, expectations and events or conditions concerning various matters. Actual results can differ materially from those currently anticipated by reason of the factors noted in our filings with the SEC including our most recent Form 10K and Form 10Q.

The earnings per share impact of revenue and expense items are all discussed on an after tax basis and compare the period referred to with the same period as the prior year. The estimated earnings per share impact of individual items is a non-GAAP presentation. However, we believe this information is useful in understanding the change in the company’s earnings between periods.

I’d now like to introduce Bill Gibson, President and CEO of Empire District Electric.

William L. Gipson

Today we’re going to discuss the financial results for the fourth quarter and 12 months ended December 31 ’08 and we’ll also update you on a few other recent events. At yesterday’s meeting the board of directors declared a quarterly dividend of $0.32 per share payable March 15th for shareholders of record as of March 1, 2009. This represents about a 7.1% yield against yesterday’s closing price of $18.13.

We reported consolidated fourth quarter 2008 earnings of $7.7 million or $0.23 per share and that compares to the same period in 2007 when we reported a loss of about $400,000 or $0.01 a share. For the 12 months ended December 31 earnings were $39.7 million, a $1.17 a share and that compares to the previous year 12 months ended earnings at $33.2 million or $1.09 a share.

Yesterday we also announced some upcoming changes to our board of directors. Board Chairman, Myron McKinney and Mary McCleary Posner will retire from the board on April 23. Both have served our board since 1991. Myron retired from the company as president and CEO in 2002 following a 35 year career at the company primarily in the customer service area. Mrs. Posner is President and a principal in Posner McCleary, Inc. an international management, consulting, marketing and advertising firm. We appreciate their many years of service and counsel to our company.

We have two outstanding candidates that will stand for election by our shareholders in April. They are Ms. Bonnie Lind and Dr. Paul Portney. Bonnie current serves as senior vice president and chief financial officer and treasurer for Neenah in Alpharetta, Georgia. Neenah has an annual revenue of about $990 million. She’s been with Neenah since 2004.

Neenah is a company that produces premium paper and specialty products used in various applications including filtration, printing and writing and has backing and component materials for specialized industrial and consumer applications. In her current position Bonnie is pretty active with capital markets and serves as the liaison with the company’s audit committee, external auditors, financial institutions and of course the investment community.

Prior to her employment at Neenah, Bonnie held various financial and strategic management positions at Kimberly-Clark Corporation from 1982 to 2003. She holds a BA in finance from the University of Georgia in Athens.

Paul currently serves as Dean of the Eller College of Management at the University of Arizona Tucson, a position he has held since 2005. Paul has also held various leadership positions including president and CEO at a organization called Resources For The Future, a Washington DC non-profit, non-partisan organization that conducts independent research on environmental, energy and natural resources issues. He has served as chief economist on the Whitehouse council on environmental quality and has held various teaching assignments at Princeton University and the University of California Berkley.

He holds a Ph.D. in economics from Northwestern in Evanston Illinois, a BA in economics from Alma College in Alma Michigan. We look forward to working with Bonnie and Paul and believe they bring valuable expertise to our board.

I’m now going to turn the presentation over to Greg to cover the financial details.

Gregory A. Knapp

As Bill stated, we reported 2008 yearend earnings of $39.7 million or earnings per share of $1.17 compared to 2007 earnings of $33.2 million or earnings per share of $1.09. I’ll get to the details in a moment but as customary for us, I’d like to begin by providing a non-GAAP basic earnings per share reconciliation for the year on a consolidated basis. For those of you who have read our press release or have it in front of you, that will be the earnings per share reconciliation that I’ll follow. I should remind you again that these earnings per share figures throughout the call are provided on an after tax estimated basis.

I’ll begin with earnings per share for the year ended December 31, 2007 that was $1.09 and I’ll add to that the impact of revenues of $0.48 in the electric segment, gas segment revenues of $0.12 and revenues from our other segment of $0.03. Then, subtracting from that total so far would be the electric fuel and purchase power expenses of $0.29 per share, cost of natural gas sold and transported of $0.11 per share, operating expenses on the electric segment of $0.02 a share, operating expenses on the gas segment are an add back of $0.01 a share and operating expenses on the non-reg are a subtraction of $0.01 per share.

Our maintenance and repair costs would be an add back to this total of $0.08 per share, depreciation and amortization would subtract $0.02 per share, gain on the sale of assets would subtract $0.03, change in the effective income tax rate between the periods would subtract $0.04, other taxes would subtract $0.01, other income and deductions would subtract $0.02, interest charges would subtract $0.09. The affects of AFUDC or allowance for funds used during construction would add to the total $0.11 per share and the dilutive effect of the additional shares primarily that we issued in December of 2007 would subtract $0.11. So if you go through all of those adds and subtracts, you should get to the earnings per share at December 31, 2008 of $1.17.

Now, I’ll review the results by category in more detail starting with the electric segment of our business. As we noted in yesterday’s press release, our electric revenues increased in 2008 due to several factors. Our jurisdictional rate increases accounted for approximately $8.8 million of the additional revenue in 2008 compared with 2007.

This of course is due almost entirely to our Missouri case completed last August. Off system revenues also had a significant impact on revenues and increased by $10.1 million as we continued to sell in to the Southwest Power Pool. As you may recall from our Missouri rate case concluded this past summer, the majority of the margin we received from off system sales is now used to reduce the fuel adjustment clause amounts.

Back to revenues; customer growth and other electric revenues added to our 2008 revenues compared to 2007 by $3.9 million and $1.3 million respectively. Based on how we analyze revenues, the only factor that reduced revenues for the comparative periods was weather. Although this is difficult to estimate, our method indicates the impact of mild weather, primarily in the third quarter reduced 2008 revenues by about $2.8 million compared to 2007. Overall, our electric segment revenues were higher in 2008 by about $21.2 million which is a 5% increase over 2007 and improved earnings per share by $0.48.

Fuel and purchase power expenses for 2008 increased by $12.8 million which decreased earnings per share on a comparative basis by approximately $0.29. The significant increase here was in purchase power was almost $9.6 million of the increase related to price increases. In comparing 2008 to 2007 coal costs were also higher in total by $6.5 million. The price component of coal increased the cost by $4 million and increased volumes accounted for the $2.5 million of the change in coal costs.

Natural gas costs were down $3.6 million which is mostly due to the unwinding of a physical hedge in 2008 where we recognized a $2.1 million gain. The effect of our fuel adjustment close in 2008 further lowered our recorded fuel expense by $.6 million compared to the adjustment made in 2007.

I’ll continue with our operating expenses which increased a modest $.8 million or $0.02 per share. Increases related to power operations, transmission operations and distribution operations totaled almost $2.7 million when comparing 2008 to 2007. However, we experienced lower costs in healthcare, pension and customer assistance type costs that helped to partially offset the increases.

Our maintenance expense decreased $2.9 million during 2008 compared to 2007 which added to earnings per share by almost $0.07. The measured component of this decrease relates to the 2007 ice storms. If your recall, portions of the expense we incurred from the ice storms were deferred for regulatory treatment which was consistent with treatment granted historically by most of the jurisdictions we serve.

The Missouri PSC approved that treatment in the recent case and we began amortization of those costs in 2008. We recorded approximately $5.4 million of expenses related to the ice storms in 2007 or as we’ve amortized $1.4 million of the deferred costs in 2008. Other maintenance costs for 2008 were relatively flat compared to 2007.

Depreciation and amortization increased about $.7 million which reduced earnings per share by approximately $0.015. While plant in service did increase, the depreciation for that was partially offset by a reduction to the regulatory amortization being recorded for our Missouri jurisdiction. We had begun recording more than $10 million of regulatory amortization annual but in a recently completed Missouri case the approved regulatory amortization was lowered to an annual amount of about $4.5 million beginning August 23rd.

If you recall how the Missouri regulatory amortization works, this really has no affect on earnings because the regulatory amortization is built in to our Missouri rate structure as well so the revenues and depreciation being recorded are designed to offset each other and to have no impact on the bottom line. Our other taxes such as city and franchise taxes also showed a slight increase of $.4 million which equates to about $0.01 per share reduction to earnings. In summary, on an earnings per share basis, the electric segment contributed $1.11 per share during 2008 compared to $1.04 per share in 2007.

Now, I’ll briefly go over the gas segment revenues and expenses. 2008 gas revenues increased $5.6 million compared to 2007 but the overall margin increased only $.6 million. The increase in revenues is mostly attributable to colder weather compared to last year causing customers to increase their usage and is offset by an increase in the cost of natural gas sold. Also, two large volume interruptible customers transferred from transportation to sales service.

A slight increase in overall sales margin added a little over $0.01 to earnings for the 2008 compared to 2007 period. In addition to the margin increase, the gas segment also improved its earnings by lowering its operating and maintenance cost by about $.2 million and $.6 million respectively. These reductions added almost $0.02 to our overall earnings. Depreciation and other taxes for the gas segment were relatively flat for the comparative periods.

On an earnings per share basis, the gas segment earned approximately $0.05 per share during 2008 compared to $0.03 per share in 2007. From a consolidated perspective total interest expense for 2008 increased approximately $2.1 million compared to 2007 lowering earnings per share by almost $0.05. Long term debt interest increased $4.9 million because of two debt offerings, the issuance of $9 million 6 3/8ths series first mortgage bonds in May of 2008 and a full year of interest expense on the $80 million 5 7/8ths series first mortgage bonds issued in March of 2007.

This increase was partially offset with lower short term interest of about $1 million and increase in debt AFUDC of $1.8 million which further reduced our overall interest costs. Other income and deductions increased during 2008 by about $3.2 million which added about $0.07 to earnings per share. Consistent with our recent increase to other income is almost entirely due to higher equity AFUDC.

Since we’ve come to another yearend, let me give you a little detail about our effective tax rates. The rate for 2008 is about 32.5% versus a 30.3% rate in 2007. Over the last few years AFUDC and tax benefits in Medicare D subsidies have significantly lowered our effective tax rate. Additionally, the 2007 effective tax rate reflected the tax treatment allowed for removal costs and losses related to the ice storms.

I’ll briefly go over the fourth quarter results. As Bill mentioned, we are reporting $7.7 million of income or $0.23 per share for the 2008 period compared to the 2007 quarter which was a loss of $.4 million or -$0.01 per share. The electric segment revenues for the 2008 fourth quarter increased over the 2007 period by about $11.5 million which adds approximately $0.25 per share. Rate increases, mostly from our Missouri jurisdiction contributed $5.3 million to the increase. Off system sales and miscellaneous electric revenues added $3.3 million and customer growth increased revenues approximately $.6 million.

In our estimate the impact of weather also appears to have contributed an additional $2.3 million to revenue as well. When comparing the two quarterly periods we estimate that the number of heating degree days increased about 14% over last year. Total electric fuel and purchase power expenses decreased $2.8 million for the 2008 fourth quarter adding to earnings per share by about $0.06.

The movements in fuel costs were clearly dramatic but I’ll try to provide some perspective on it. Last year of course our Asbury coal unit was down for the entire quarter which drove our costs up substantially as we’ve discussed in previous calls. In 2008 we were without one of our coal units for the month of December Iatan Unit 1 which was down for maintenance and the tie in to the new SCR. Bill will give you an update on that in a minute.

Our coal volumes still increased with Asbury’s availability and we also used our natural gas units more, primarily State Line combined cycle since we’ve seen a significant decrease in the natural gas prices in recent months. This enabled us to reduce our purchase power volumes during the same time period compared to the 2007 fourth quarter.

With all that said of course, the most significant impact to our business was that the 2008 fourth quarter was the first full quarter where we had a full adjustment mechanism in all of our jurisdictions. We deferred approximately $1.7 million more in costs during the fourth quarter of 2008 compared to 2007, mostly due to the implementation of the Missouri fuel adjustment mechanism.

Other operating expenses decreased a modest $.2 million but were offset by maintenance expense which increased $.7 million. These two areas net out to a negative impact on earnings per share of about $0.01. Depreciation and amortization expense is lower by $.8 million adding to earnings per share by approximately $0.02. This is due to the Missouri regulatory amortization being reduced in the recent case which I discussed earlier. Also, franchise, property and local taxes have decreased approximately $.3 million adding about $0.01 per share to the 2008 quarter compared to 2007.

We also have one other item that affects the quarter comparison, the unit train sale from 2007 resulted in a gain of $1.2 million which reduced the 2008 earnings per share comparison by about $0.03. In total, the electric system income for the 2008 fourth quarter was $6.8 million or approximately $0.20 per share compared to a loss in the 2007 fourth quarter of $1.6 million or -$0.05 per share.

Switching over the gas operations again, revenues increased approximately $4.8 million for the 2008 quarter and the cost of natural gas sold was also higher by about $4.6 million so the impact on earnings was negligible. Other operating cost for the gas segment during the 2008 fourth quarter were lower by about $.3 million and maintenance costs were relatively flat during 2008 compared to 2007 which adds to earnings per share by approximately $0.01. Depreciation was flat as well and other taxes were slightly higher by $.2 million for the comparative period.

The gas segment net income for the fourth quarter of 2008 was $1.1 million versus $.9 million for 2007 and contributed $0.03 overall to earnings per share for 2008 and 2007 quarters. On a consolidated basis, our total interest cost have increased for the 2008 quarterly period by about $1 million reducing earnings per share by $0.02. Long term debt interest increased by about $1.5 million but is partially offset by an increase in debt AFUDC of $.5 million. Also, our other income and expense category added approximately $.9 million to earnings or another $0.01 per share when comparing the two quarterly periods.

That concludes the earnings information I wanted to provide but I’d like to update you on a few things including our current hedge position with data as of January 30th. Approximately 78% of our anticipated volume of natural gas usage for our electric operations for 2009 is hedged at an average price of $6.38 per dekatherm. For 2010 we have hedged approximately 64% or 5.7 million dekatherms hedged at a price of about $6.54. 2011, we’re hedged about 37% or 3.2 million dekatherms at $5.56 and for 2012 we’re hedged 14% or 1.2 million dekatherms at $7.30 and 2013 we’re hedged 12%, almost 1.2 million dekatherms at the same $7.30 price.

For our gas operations we have 100% of the expected need price protected for the remaining winter season which runs through the end of March including .8 million dekatherms in storage on the three pipelines that serve our customers. This represents 40% of our storage capacity. In November S&P credit ratings raised our senior unsecured debt rating from a BB positive to a BBB minus based on their revised notching criteria.

Finally I know liquidity is on everyone’s mind so I would like to speak to our position. We currently have $104 million in borrowings under our $150 million bank revolving credit facility. We also have outstanding commercial paper of $17 million and we have about $6 million cash on hand. Our current short term debt is at a high level on a historical basis primarily as a result of funding our ongoing construction program.

As we’ve said in prior calls we intend to issue equity and/or long term debt in the near future to repay all or a portion of our short term debt and to provide liquidity to fund our ongoing construction program and operations. In addition we are working with our banking syndicate to seek an increase in commitments to help meet short term liquidity needs. I’ll now turn the presentation back to Bill.

William L. Gipson

On November 26th our 38 year old Asbury Power Station completed a record setting 254 day continuous run a real testament to the expertise of that crew at the Power Station. It was taken offline to repair a lubricating oil pump and returned to service on December 8th. On December 15th the Meridian Way Wind Farm was declared commercially operational. This is a wind farm located near Concordia, Kansas.

It’s a 200 megawatt wind farm owned and operated by Horizon Wind Energy. We have a 20 year contract to purchase the energy generated by the 105 megawatt East phase of the project. This phase is expected to have an annual output of about 350,000 megawatt hours or enough to meet the annual electricity needs of about 25,000 homes.

Our contract with Meridian Way provides price stability and reduces our exposure to the volatility of the natural gas market thereby furthering our mission to ensure our customers benefit from a balanced mix of generation resources.

When we couple this purchase with our other purchase agreement with the Elk River Wind Farm and has the potential to account for as much for 15% of the energy that we deliver to the grid on an annual basis. While we’re discussing energy supply matters I want to mention the status of the I-10 Unit 1.

Unit 1 was fired on coal on February 1st for the first time since the environmental and turbine upgrades were installed. Kansas City Power and Light is currently in the process of testing and commissioning new systems and we certainly look forward to the successful completion of the outage and the ultimate return to service on Unit 1.

During this past quarter we set a new all time winter peak for electric demand. That was on December 22 when the temperature was about six degrees and pushed demand to about 1,100 megawatts. Our previous winter peak was set on February 16, 2007 at about 1,059 megawatts.

We also set a new peak for the gas segment on January 15th when subzero temperatures in our gas service area caused our customers to call for about 70,070 mcf and that surpassed our previous peak that occurred again in 2007 by about 2.5%. On November 21 we opened a system reliability center in Joplin to house the employees who are focused on maintaining the electrical transmission and distribution system for safe and reliable energy delivery.

We also have been developing a utility arboretum in Ozark, Missouri. Here our customers can see living examples of proper tree selection and placement in relationship to an existing power line. This is a unique educational tool and is designed to enhance the safe and reliable operation of the electric system while preserving the health and beauty of the landscape.

This project is a joint effort with the Missouri Department of Conservation and the Parks Department of the City of Ozark and we hope to establish a similar project in or around Joplin. Finally during the last quarter we introduced some new media campaign that strived to educate our customers about the balanced mix of resources we’re using to generate their energy.

Commercials are also encouraging them to take steps to control their own usage through energy efficiency and I’d encourage you to take a look at the commercials. You can view them on our website at I’ll now turn the conference back to the Operator to facilitate your questions.

Question-And-Answer Session


(Operator Instructions) Our first question comes from Anthony Crowdell - Jeffries and Company.

Anthony Crowdell - Jeffries and Company

One simple question, the average shares, if you guys could give them to me quarter-over-quarter and then the other question is regarding Missouri regulation. I think in mid-January there was a change in the Commission. I believe Chairman Davis is now, I don’t know if just a Commissioner is the right term, and previous Commissioner Clayton is now Chairman Clayton.

Historically or at least for the last three or fours you guys have had very balanced regulation in Missouri particularly with the construction program you’re undertaking. Are you guys at all concerned of the change in the Commission?

William L. Gipson

I’ll handle the last question first. We still have Commissioner Davis is still on the bench. Commissioner Jarrett remains on the bench. I believe their terms expire at 2012 and 2013 respectively. Commissioner Gunn is new to the bench. I think his term expires also in 2013 and I’ve not given up Commissioner Gunn.

He did not vote in favor of our order in this last case but if you read his dissent, his issue was on return on equity and although the majority chose 10.8, Commissioner Gunn wasn’t all that far behind with 10.5. Commissioner Murray’s term expires in April and these are Gubernatorial appointments and Governor Nixon has been pretty straightforward. He wants Missouri to be what he calls an energy exporter.

I believe he gets the connection between the need for constructive Commission decisions. Commissioners that understand the need to balance shareholder interest as well as consumer interest and I believe he understands that if he’s to achieve his vision for Missouri to be an energy exporter that he’s going to have to appoint individuals to the Commission that share the same vision.

Like I said Commissioner Murray’s appointment comes up in April so we’re going to know pretty quick. Anthony, you’re right on it and we’re watching it closely.

Gregory A. Knapp

Anthony, you were asking about the weighted average number of shares on a quarterly basis this quarter over same period. The quarter ended 12/31/07 was 31,175,000 and the quarter ended 12/31/08 was 33,951,000.


Our next question comes from Phyllis Gray - Dwight Asset Management.

Phyllis Gray - Dwight Asset Management

Has there been any cost estimate update for the Iatan 1 and Iatan 2 projects?

William L. Gipson

Phyllis, there’s not been any updates since that re-forecast was made I believe it was last May time frame. Our share of Iatan 1 is about $16 million and our share of Iatan 2, my memory is $228 million, let’s just say $230 million for a good round number.

Phyllis Gray - Dwight Asset Management

Also could we just run through some of the items from the income statement? The interest expense for 2008?

Gregory A. Knapp

The interest expense, let me give it to you a couple different ways. The interest expense on our long term debt was right at about $40 million. Short term debt would be about $2 million and that long term debt I gave you included the trust preferred interest expense. We’ve talked a lot about the levels of AFUDC that we have on here.

I can tell you that the debt AFUDC piece if you’re interest in that would have been about $7 million going the other direction and equity of about $6 million.

Phyllis Gray - Dwight Asset Management

And your depreciation and amortization?

Gregory A. Knapp

For the year 2008 it was right at about $54 million.

Phyllis Gray - Dwight Asset Management

I had down $70 million for last year. That must be a typo.

William L. Gipson

Let us scratch around on that a little bit, Phyllis.

Gregory A. Knapp

$54 million last year.

Phyllis Gray - Dwight Asset Management

You said it’s $54 million this year?

Gregory A. Knapp

We are at about $54 million for depreciation expense this year and last year it was about $53 million of depreciation expense.

Phyllis Gray - Dwight Asset Management

Can you give me a total debt number for yearend including your short term debt, capital lease and trust preferred?

Gregory A. Knapp

We have really not much in the way of capital lease but I’ll give it to you by category. The first mortgage bonds in total about $333 million. The trust preferred about $50 million. The senior unsecured about $248 million and then the short term debt at the end of the year was $102 million.

Phyllis Gray - Dwight Asset Management

I’ve got a total of about $733 million?

Gregory A. Knapp

That’s correct.

Phyllis Gray - Dwight Asset Management

The shareholders’ equity at the end of the year?

Gregory A. Knapp

Right about $530 million.

Phyllis Gray - Dwight Asset Management

You mentioned earlier in the call some financing plans. Are you looking to get that done in the first or second quarter or any sense of the timing around that?

William L. Gipson

Phyllis what we reported in the past and then the way we’ve financed has been when that short term debt gets to a level like it is now or even a little bit lower than that, we’ve tended to go out and take out the short term debt with permanent financing trying to keep our debt and equity fairly balanced. Our intention is to do that. We’re obviously dealing with a market that is difficult to understand what’s going to happen from a day in, day out basis.

We think the plan that I outlined for you with our intention to issue debt and/or equity in the near future will work for us. We’ve seen deals getting done. We’ve all seen deals getting done in the utility space and look for us to do it sooner rather than later. We’re going to try to do some permanent financing. I just don’t have anything to announce right now.

Phyllis Gray - Dwight Asset Management

Also, you cap ex for 2008? Do you have that number?

Greg it’s approximately $211 million, Phyllis?

Phyllis Gray - Dwight Asset Management

Have you provided an estimate of cap ex for this year?

Gregory A. Knapp

We will have it in our 10-K that we’ll be filing. We have provided it in past years and I think what we’ve had would have been updated to reflect the numbers that Bill referred to earlier and that’s been the only significant revisions. There’s other little tweaks that you make as you go but the significant revisions would have been the Iatan revisions that Bill mentioned earlier and those have been reflected in the numbers we’ve had in our quarterly disclosures.

We’ll have all that detailed out in our 10-K that we have a target filing date of February 20th for.


Our next question comes from Timothy Winter - Jesup & Lamont Securities Corporation.

Timothy Winter - Jesup & Lamont Securities Corporation

I was wondering if you could update us or if you have any color on the construction progress of the two coal plants? I did read an article that Dynegy was considering changing its ownership in some of its plants throughout the country. If there’s been any change with Plum Point and if the construction made it through the cold part of the winter okay.

William L. Gipson

We’ve read essentially the same thing you have Tim with respect to Dynegy’s intent to what they call harvest their investment and we have talked to them about it. But at this juncture neither they nor we have anything to report further than that. With respect to Plum Point it remains on budget, on schedule to provide energy and capacity to us in mid-2010.

Timothy Winter - Jesup & Lamont Securities Corporation

And the construction goes smoothly through the cold snap we had, the ice storm and all that?

William L. Gipson

I don’t know all the appropriate schedules or all of the planned schedules through that. I know one day that they didn’t work, they were like a lot of other individuals and businesses in that part of the world, they were out of power for at least one day that I know of. I wouldn’t expect this event to have a material effect on the construction at Plum Point.


Our next question comes from [Unidentified Analyst].

[Unidentified Analyst]

Would you mind commenting on your economic activity in your service territory in the latest quarter as well as your sales volumes expectations for 2009 particularly in regards to your industrial sales?

William L. Gipson

This is a question that we’ve been getting a lot recently as most companies have. I can tell you on both the electric and the gas property we’ve not had a plant closing. We’ve had some layoffs and some shifts where an industrial customer might have been performing at three shifts might have cut back to two and a half shifts or two shifts. But again we’ve not had a plant closing.

One of the things that we gauge the economic well being of the service area is on our level of bad debt expense and I’m proud to say that we ended 2008 with a bad debt expense on both the electric and the gas properties well in the middle of the range that we believe is acceptable. On the electric property it was about 0.5% of revenue and on the gas property about 1.4% of revenue.

Employment remains fairly strong. I can tell you that at the end of third quarter, I don’t have fourth quarter numbers, but the unemployment rate on our electric property was 5.1%. We’re continuing to watch it closely. You asked specifically about industrial customers and we’ve taken a look at that. We’ve seen some curtailment on energy use with building products manufacturers and a bit with poultry processing.

We always take a look at the industrial load as pretty much non-weather sensitive but we do have some refrigeration customers that we saw some decrease in usage in the third quarter when we had a cool summer in Southwest Missouri. If I back all those out we have seen a bit of a decline in our industrial consumer base probably in the 3% range. Remember the industrial sector for us is about 15% of total retail.

We’re seeing a bit of an impact but again it’s not the kind of a negative impact that we’ve seen some of our peers have. In terms of the forward look, we still are seeing customer growth in our service area. We ended the year with about four tenths of 1% customer growth on the electric property. I think Greg spoke to some of the growth aspects that we’ve seen in the numbers. I’ve said a lot, I don’t know if I’ve answered your question yet.

[Unidentified Analyst]

It’s very helpful, I really appreciate it. What about looking at the 2009 with regards to those same kinds of metrics, customer growth and sales volumes? Are you seeing anything that might be worrying?

William L. Gipson

I gave you all the indicators that we’re looking at and until we see something that’s materially negative in one of those indicators we wouldn’t believe that we’ve got a material issue in terms of sales volumes going forward. I expect that 2009 will be weather adjusted. If it were a really cold, cold winter or a really, really hot, hot summer then we’ll get the benefit of that. Weather adjusted I wouldn’t expect us to have more than a half of 1% growth year-over-year.


Mr. Gibson I show that there are no further questions in the queue. You can go ahead with any closing statements.

William L. Gipson

Thank you all. We really appreciate the opportunity again to review our earnings and bring you up to date with events that affect the company and always we continue to focus on increasing shareholder value and providing reliable service to our customers. I wish you a great afternoon.


Ladies and gentlemen this concludes the Empire District Electric Q4 earnings conference call. If you’d like to listen to a replay of today’s conference please dial 303-590-3000 or 800-405-2236 with the access code of 11125524. ACP would like to thank you for your participation. You may now disconnect.

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