Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Robert L. Goocher - Vice President of Investor Relations and Treasurer

Carl L. Chapman - Chairman of the Board, Chief Executive Officer and President

Analysts

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

Sarah Akers - Wells Fargo Securities, LLC, Research Division

Paul Patterson - Glenrock Associates LLC

Vectren Corp (VVC) Discussion of ProLiance Investment Conference June 19, 2013 11:00 AM ET

Operator

Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vectren Corporation Discussion of ProLiance Investment Conference Call. [Operator Instructions] Thank you.

Robert Goocher, Treasurer and Vice President of Investor Relations for Vectren Corporation, you may begin your conference.

Robert L. Goocher

Thank you, operator. Good morning, thank you all for joining us today as we provide an update on Vectren's investment in ProLiance. This call is being webcast and shortly following its conclusion, a replay will be available on our website at vectren.com in the Investors section. A copy of the press release and today's slide presentation are also located on our website.

As further described on Slide 3, I would like to remind you that some of the statements made on this call will be forward-looking statements. Actual results may differ materially from those discussed in this presentation. Carl Chapman, Vectren's Chairman, President and CEO, will provide this morning's comments. Following our prepared remarks, we will be glad to answer questions you might have. Also joining us on today's call is Jerry Benkert, Executive Vice President and CFO; and Ron Christian, Executive Vice President and Chief Legal and External Affairs Officer.

With that, I'll turn it over to Carl.

Carl L. Chapman

Thank you, Robert. And before we get started, maybe looking at a couple comments on the slide, just really big picture. I wanted to just comment that we think our announcement yesterday related to ProLiance continues our strategy of less focus on our commodity businesses and growing Vectren Infrastructure Services and Vectren Energy Services in addition of course to our Utilities, which still is the primary contributor of our earnings. And our key focus here was to make sure that we had a solid exit of this part of the business.

I might just remind you that ProLiance Holdings is the company that we are investors in. It's a joint venture with Citizens Energy Group. Had really 2 parts, ProLiance Energy, which is the part where we sold a substantial portion of the net assets yesterday, and then also ProLiance Transportation and Storage. And really, our investment goes all the way back to 1996, we're a 61% owner. I think most of you that know us know we've been an equity accounting from the start. We contributed $500,000 at that time and also later contributed a small gas marketer called Sigcorp Energy Services, which moved us from 50% to 61%. ProLiance Energy has provided gas supply services starting primarily as a portfolio administration to Vectren's and Citizens’ Indiana gas utilities, but also to nearly 2,000 commercial and industrial customers.

We really have been looking at our best approach here. We shared in our 2012 10-K and our first quarter 2013 10-Q that we are exploring alternatives -- ProLiance was really exploring alternatives to its historic business model. And ProLiance has recently determined, really, as it relates to all the ProLiance stakeholders, that our best course of action and optimal course was a disposition to a subsidiary of Energy Transfer Partners of energies marketing assets and related liabilities. This exit provides for the assignment or termination of obligations of ProLiance's firm transportation and storage commitments. And again, I want to emphasize, an exit from those. We think this is consistent, as I mentioned, with our strategy. And really, we've been scaling back this business for a while by dropping commitments. And of course, we also sold our retail gas marketer, Vectren Source, in December of 2011.

Turning to Slide 6, just as we think about the customers of ProLiance. Really, I'm going to comment here is 2 things. Number one, we believe that Energy Transfer Partners should continue excellent service to our utilities, as well as the 2,000 customers that have been transferred. I'd also like to point out that since inception in 1996, ProLiance Energy has saved Vectren's and Citizens’ Indiana gas utility customers well over $200 million in gas costs. And this alliance, obviously, continues between Vectren and Citizens gas supply to the utility customers, now done by Energy Transfer Partners.

Turning to Slide 7, just to give you a little bit of detail on the transaction and really nothing new year from our press release. But again, announced yesterday that we were exiting the Gas Marketing business by disposing of certain net assets. We did assign or terminate all the obligations related to ProLiance for the firm transportation and storage commitments. That was obviously one of our keys. We believe that this will result in a loss at the Vectren level, our 61% ownership in the second quarter of $26 million to $28 million or $0.32 to $0.34. We provided a range of losses here to allow for eventual impacts of any various transaction true ups, of course, primarily tied to working capital. Following the sale, one real key, no ongoing operating losses are expected. The year-to-date operating losses at the Vectren level through the close of the transaction, we would expect to be $0.10 to $0.12. And we do expect this transaction to be cash flow neutral at the Vectren level.

Turning to Slide 8. Again, what will be left then are the physical assets of ProLiance Transportation and Storage. Those are equal about $30 million at our level, our 61% level. Those investments really include about $15 million of remaining value from 3 physical storage and pipeline assets, 2 of which were recently sold about book value. In addition, there's a $35 million minority joint venture investment that was backed all the way May 2005, with Sempra related to a storage -- a salt-dome storage facility, which is located near Sempra’s Cameron LNG facility, which of course is in queue for DOE approval. The LNG facility is, in this particular storage facility, is near that. We obviously, at the ProLiance level, will continue to monitor this investment.

Turning to slide 9 and just summarizing before we go to Q&A, what this really means to our investment and in the past. Obviously, fundamental shifts have occurred. Shale gas being the #1, probably, but also additional transportation investments made by others, have made it increasingly difficult for the model that we had to give us a consistent return for our shareholders despite very extensive work to return to profitability. In addition to that, it's been very difficult to obtain value for Vectren shareholders even when the business performs, because we really see a more stable, predictable earning stream being of more value, that's why we're focused on Infrastructure Services and Energy Services going forward. However, over the life of the investment, I would just comment, that ProLiance has provided significant cash flow benefits to Vectren.

Because of this change, really, we think in the best long-term interest of our shareholders and all stakeholders, we really looked at our, obviously, shareholders, but also our utilities, ProLiance's customers, employees and suppliers. And we believe this was the best option of those we considered. Clearly, it will allow us to focus on growing our core Utility business, which is a still 80% to 90% of earnings, as well as growing Infrastructure Services and Energy Services. And once again, I want to comment that the transaction is expected to be cash flow neutral at the Vectren level.

And with that, we'll just turn it to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from the line of Matt Tucker of KeyBanc Capital.

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

Could you talk a little bit more about the outlook for the remaining ProLiance assets? And do you anticipate there being any earnings or losses from those going forward?

Carl L. Chapman

Matt, really what we shared is, is that, again, about $15 million of the smaller assets and about a significant portion of those sold already and then the Liberty investment. The Liberty investment, again, I think primarily because of how close the proximity is to the Cameron facility, I really think a lot of the Liberty decisions will be made later because of that. So we really don't have any significant P&L issues associated with those. Obviously, at this point, the investment on Liberty is really just that and investment is not operating, and the other ones are very small and have no significant operating results.

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

That's helpful. And could you just provide a little bit of kind of a background of the process that resulted in this sale. Did you consider winding the business down versus selling? How did you and ETP find each other? Were there other interested buyers? A little more color there.

Carl L. Chapman

Yes. I would just simply say, we'll just talk about it in very general terms. We use a very broad process in terms of looking at potential parties to do transaction with. So it was very broad. In addition to that, in terms of the other things that we looked at, we did consider a number of options. And after we looked at all those, we really felt like, not only for our shareholders, also our utilities, who our large customers of this business, and the other customers, employees and then stakeholders, we really felt like this was easily the best transaction in front of us.

Operator

Your next question is from the line of Sarah Akers of Wells Fargo.

Sarah Akers - Wells Fargo Securities, LLC, Research Division

I know the end result is cash flow neutral at the Vectren level, but can you walk through some of the moving pieces there? Kind of what's happening with the working capital? Any cash tax implication kind of what's netting out?

Carl L. Chapman

Yes. Sarah, when we've said cash flow neutral, we're really saying after considering some tax benefits. But really, our focus was to exit from commitments. And so rather than get into any details of how various pieces work, I'd rather just comment that our focus was to make sure that we had an exit. And then we're pleased with the end result, which as you say considering some tax benefits, it means that the whole transaction is neutral at the Vectren level or roughly neutral.

Operator

[Operator Instructions] The next question is from the line of Paul Patterson of Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

Just to be completely clear, there's no guarantees or encumbrance? So there's nothing -- there's no contractual guarantees or anything with ETP or anything of the sort, is that correct?

Carl L. Chapman

Yes, that's correct. Obviously, various contracts are being transferred. But in terms of its exposure to Vectren, we don't see any issues there. And there's obviously reps and warranties as a transaction like this would have, but we're not of the opinion that there's anything unique there to be concerned about.

Paul Patterson - Glenrock Associates LLC

Okay. So there's really not much of a cash impact, there's a bit of a write-down. And then, basically, ongoing -- we should just expect, really, nothing more from ProLiance that will really sort of be a footnote, right? Is that the way to think of it?

Carl L. Chapman

I think that's generally the way to think of it. Obviously, we described that we still have some investment in storage assets, but that's generally the right way to think about it.

Paul Patterson - Glenrock Associates LLC

Right. But you guys didn't expect to see much of a P&L from that, is that I mean...

Carl L. Chapman

I described earlier our expectations at this point there.

Paul Patterson - Glenrock Associates LLC

Okay. So the ProLiance story is -- we don't have to talk about this much anymore after this call perhaps, does that make sense?

Robert L. Goocher

Now isn't that just a welcome change.

Operator

There are no further questions. I will turn the call back over to the presenters.

Robert L. Goocher

Well, thank you, operator. We would like to thank everyone for joining us and our call today. And on behalf of our entire Vectren team, we appreciate your continued interest in the company. With that, we'll conclude our call for today. Thanks again for your participation.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Vectren's CEO Hosts Discussion of ProLiance Investment Conference (Transcript)
This Transcript
All Transcripts