NorthWestern Corp (NWE) CEO Discusses Q2 2013 Results - Earnings Call Transcript

| About: NorthWestern Corporation (NWE)

NorthWestern Corp (NYSE:NWE)

Q2 2013 Earnings Call

July 25, 2013 3:30 PM ET

Executives

Travis Meyer – IR

Robert Rowe – President and CEO

Brian Bird – VP and CFO

Analysts

Paul Ridzon – KeyBanc

Brian Russo – Ladenburg Thalmann

Operator

Good day, ladies and gentlemen, and welcome to today’s NorthWestern Energy Corporation Second Quarter 2013 Financial Results Conference Call. Today’s call is being recorded. At this time I would like to turn the conference over to Mr. Travis Meyer. Please go ahead, sir.

Travis Meyer

Thank you, Catherine. Good afternoon and welcome to NorthWestern Corporation’s financial results conference call and webcast for the quarter-ended June 30, 2013. NorthWestern’s results have been released and the release is available on our website at www.northwesternenergy.com. We also filed our 10-Q after the market closed yesterday.

Joining us on the call today are Bob Rowe, President and CEO; Brian Bird, Vice President and Chief Financial Officer; Kendall Kliewer, Vice President and Controller; John Hines, Vice President of Energy Supply and Mike Cashell, Vice President of Transmission.

This presentation contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of this date. Our actual results may differ materially and adversely from those expressed in our forward-looking statements as a result of various factors and uncertainties, including those listed in our Annual Report on Form 10-K, recent and forthcoming 10-Qs, recent Form 8-Ks and other filings with the SEC. We undertake no obligation to revise or publicly update our forward-looking statements for any reason.

Following our presentation, those who are joining us by teleconference will be able to ask questions. A replay of today’s call will be available beginning at 6:30 Eastern Time through August 25, 2013. To access the replay dial 888-203-1112, then access code 1856638. Again that’s 888-203-1112, access code 1856638. A replay of today’s webcast will also be available on our website.

I’ll now turn it over to President and CEO, Bob Rowe.

Robert Rowe

Thank you, Travis. As many of you know we move most of our Board around our service territories, so today we are at our Brookings in South Dakota office. Yesterday we had our Board meeting on the campus of South Dakota, State University. Last night we had a great community event and then this morning a meeting with our employees here in Brookings. On Tuesday we were about 150 miles Northwest from here in Aberdeen, South Dakota where we held a dedication and ribbon cutting for our new Aberdeen generating station, that’s our most recent energy supply addition in South Dakota and recognized the successful completion and effort put forth by many people both inside and outside the company.

This is a 60 megawatt gas peaker came in to service on April 30th and has already been called upon several times to help meet heavy loads from the summer temperatures that we have been experiencing here and of course other parts of the country as well.

Similarly just a few weeks earlier we held a dedication for our 40 megawatt wind facility in Judith Basin County in Montana. So we have lot of experience cutting ribbons over the last few weeks. That facility Spion Kop was completed and placed into commercial operation in December. On our last call in April we mentioned the capacity factor at Spion Kop was far exceeding our expectations but we also cautioned that winds typically do slow in the spring and summer months. However with spring behind us and already in the middle of the summer we are still blown away, are in that really terrible bind with a capacity factor of around 46%. We are confident that these two new adds along with our pending natural gas acquisition that we will discuss a bit more are going to be great addition to our gas and electric energy supply portfolios, and are going help us provide our customers clean cost effective and reliable energy for decades to come.

I will provide an update on the pending natural gas transaction a little bit later. I know most of you have already read our Q and our release and as you saw we have experienced improvement in gross margin, operating income, net income as compared to the second quarter of last year, come back and cover out some more detail on some of operational details, but first I am going to turn things over to Brian to report on some of the progress on the earning side. Before I do that I do want to announce that our Board of Directors did declare a common stock dividend of $0.38 per share payable on September 30th to shareholders of record as of September 30. Brian?

Brian Bird

Thanks Bob. As Bob mentioned we again are pleased with our financial results this quarter. It’s not always fun to be a CFO but a nice solid quarter like this certainly makes it more enjoyable.

We reported consolidated net income of $14.3 million or $0.37 per diluted share for the quarter ended June 30, 2013 as compared with net income of $11.4 million or $0.31 per diluted share for the same quarter in 2012. The latest this quarter fell fairly, simple improvements in weather on a year-over-year basis and the addition of our growth projects and electric generation and gas production are the primary drivers for improved results.

Provide a little more detail gross margin was $153.3 million or $5.1 million better than last year primarily due to the following; an increase in natural gas and electric retail volumes due primarily to colder and more typical spring weather, an increase in natural gas production margin primarily from the acquisition of the Bear Paw assets in the third quarter of 2012; an increase in electric transmission capacity revenues due largely to wholesale energy market pricing; margin contribution from Spion Kop placed in to service late in the fourth quarter of last year; lower [inaudible] related energy supply cost and although a relative low volume quarter for gas we did also start recognizing the benefit of the natural gas rate increase we were authorized to start collecting on April 1st.

These improvements were partly offset by decrease in our demand side management or DSM loss revenues recovered through our supply trackers, lower DGGS revenue primarily due to an increase in our FERC related deferrals after last September’s initial decision from the FERC ALJ and lower revenues from operating expenses recovered in trackers primarily related to customer efficiency programs.

On the expense side operating, general and administrative expense of $67.4 million are only $300,000 higher than the same quarter last year, primarily due to incremental operating and maintenance cost related to full production of our DSIP or distribution system infrastructure project this year as compared to the phasing activities in 2011 and 2012 when we deferred those expenses. Also increased labor cost due primarily to compensation increases and some additional employees, higher plant operator cost due to the Spion Kop acquisition and plant maintenance at Colstrip Unit 4, and also higher natural gas production cost due to the Bear Paw acquisition.

These increases were partly offset by decreased pension expense and lower operating expenses recovered in trackers, again primarily related to customer efficiency programs. Depreciation expense was $27.4 million or $1 million higher than the same quarter last year. This $1 million variance deserves a little more explanation however. Depreciation expense actually increased by $2.5 million due to plant additions but was offset impart by reduction in depreciation rates of approximately 1.5 million for the quarter as a result of recent third party depreciation studies. These studies indicated on average we should assign longer asset lives to our electric and natural gas assets in Montana, and electric assets in South Dakota.

In addition to the $1.5 million benefit we experienced this quarter we expect an ongoing benefit, depreciation expense due to the change in rates of approximately 3 million for the last half of 2013 that will help partially offset the increases we otherwise experienced due to continued investment. With gross margin up 5.1 million and operating expenses in total up 1.2 million, operating income improved by 3.9 million over the same quarter last year. Interest expense was 1.2 million higher than last year primarily due to increased debt outstanding as can be expected for a growing utility.

Income tax expense was 2.1 million or 0.5 million less than last year due impart to production tax credits coming from Spion Kop and few other minor differences in state and other taxes. Finally when we get down to the net income for the quarter we saw a 2.9 million improvement moving us to 14.3 million this year from 11.4 million during Q2 last year. Our diluted share count was about 1.4 million higher this quarter than Q2 last year due to share issuances under equity share program but 2.9 million increase in the net income more than offset the dilution resulting and a $0.06 per share improvement in EPS I mentioned earlier.

You might recall during the second quarter last year we had two non-GAAP adjustments to reconcile through our guidance. We added $0.05 per share back from for mild weather and we subtracted $0.05 per share for another period release of previously deferred ESM loss revenue. Those two adjustments offset each other so GAAP and adjusted EPS were both $0.31 per share last year.

The only adjustment we would make this quarter is we estimate weather to have contributed approximately $0.02 per share benefit as compared to normal weather. So our adjusted EPS is actually $0.35 per share as compared to GAAP EPS of $0.37 a share. This reflects then $0.04 per share improvement over the adjusted $0.31 per share earnings last year. Again, that $0.04 per share improvement was largely driven by the increase in gross margin mentioned previously.

Our Press Release includes a table that shows these quarterly non-GAAP adjustments for 2012 and the first half of 2013. And as for remainder of the year and for your guidance I am certain most of you noted from our press release this morning we moved upwards the bottom and top end of our guidance range of $0.05 per share from $2.40 to $2.55 up to $2.45 to $2.60 per diluted share. With a solid first half of the year behind us we feel confident increasing our guidance for the full year. Primary drivers for the increase are as follows; the ongoing benefit related to the depreciation studies and our effective tax rate of 12% which is at the low-end of our initial 12% to 16% range and these benefits are partially offset by expense timing that will push some cost anticipated in the first half of the year into the second half and the potential impact of reduced transmission revenue as a result for the outage at Colstrip unit 4.

As a reminder, our primary assumptions for the guidance range include consolidated income tax rate of approximately 12% of pretax income and normal weather in our electric and natural gas service territories for the remainder of 2013. Guidance excludes any potential or additional impact as a result of the FERC decision regarding revenue collection at our Dave Gates generating station and any unanticipated cost due to Colstrip-unit 4 outage, $2.45 to $2.60 still assumes approximately 38.1 million diluted average shares outstanding for the year.

Now moving to the balance sheet; as of June 30, 2013 cash and equivalents was 7.8 million compared to 8.1 million at the same time last year. We had 232.5 million available from our revolving credit facility at June 30 this year as compared with 162 million at June 30 last year. Total debt at the end of the quarter was just over 1.1 billion. Our total debt-to-cap ratio was 52.8 at June 30 and is in the middle of our 50% to 55% range we continue to target.

We continue to execute on our equity distribution program. During the second quarter we issued 26.1 million of equity and in total we have issued 72.3 million since we initiated the program last year. Our equity distribution plan extends to the end of 2014 and authorizes up to 100 million of total issuances.

I look forward to your questions so with that I will turn it back over to Bob.

Robert Rowe

Thank you, Brian. As you have heard earnings drivers much of the benefit we are seeing year-over-year is the result of our energy supply additions. These projects provide great investment opportunities for our shareholders while guaranteeing or while providing our customers long term certainty and price stability.

At the start of the call I mentioned I would come back and provide some more detail around our supply investments on the gas side we are referring to our most recent acquisition as Bear Paw South and is a reminder this is the transaction that we announced on May 28 to purchase 64.6 Bcf of proven and producing gas production in the Southern Bear Paw basin of North Central Montana.

The $70 million purchase price also included an 82% interest in the Havre Pipeline Company. Havre Pipeline is a small regulated utility providing farm cap gas services but is primarily a gas gathering and transmission company for the Bear Paw basin. Although it’s a much smaller part of the overall transaction this piece of the transaction does require a limited waiver from the Montana Public Service Commission to allow NorthWestern to own and operate this regulated public utility as a subsidiary. The request for waiver was filed on June 21st, the deadline to intervene July 19th and the only party to do so was the Montana Consumer Council which of course would normally intervene in matters of this type. We hope to have the waiver approved during the third quarter and are targeting to close on the transaction early in the fourth quarter.

Similar to the first two gas acquisitions that we made we are not seeking preapproval as a condition of closing instead upon closing we anticipate using the same bridging practice of using our natural gas tracker to recover expenses, depreciation, depletion and return on investments until the reserves are placed in the rate base through the standard approval process. This is a reasonably priced acquisition that we estimate to provide customers with 20 year levelized price of $4.10 per dekatherm.

On a less momentous note unfortunately there are no new updates on our FERC revenue allocation issue concerning the Dave Gates generating station since our last call. In case any of you may be less familiar with this matter I am going to spend just a few minutes to bring you up to speed and those of you who know the story about hurricane refill your coffee cup right now for a moment.

FERC ALJ issued initial a non-binding decision in September of ‘12 regarding the allocation of costs on what was then a new gas plant that we put into service in January ‘11 intended to provide regulated reserves to both retail and FERC jurisdictional customers. The initial decision from the FERC ALJ resulted in an allocation that was only a fraction of the amount that we believe should be allocated to the FERC jurisdictional customer based on past practices. As a result of the initial decision we continue to defer revenue of approximately $700,000 per month and now have the cumulative deferral of 20.7 million as of the end of June.

Our briefs as well as others from the Montana PSC, Montana Consumer Council, Bonneville Power Administration and the Edison Electric Institute are all in our position to ALJ’s decision is pending before the FERC. We have since we discussed before we have no assurance on timing but we do hope the FERC will consider the matter and issue a binding decision sometime before the end of the year. The FERC is not obligated to follow any of the findings from the ALJ’s initial decision and can accept or reject the initial decision either in whole or in part. If the FERC upholds the ALJ’s decision and a portion of the cost are affectively disallowed we would be required to assess DGGS or potential impairment. If we disagree with the decision we may of course pursue full appellate rights through rehearing and appeal to the United States Circuit Court of Appeals and that could realistically extend the matter into 2015.

Turning from FERC to provide a brief update on several state regulatory matters, as we mentioned in April we continue to anticipate that our next general rate case filings could be made in 2014 based on 2013 test year as we discussed before and as we do every year we will run through the numbers to determine which jurisdictions are or would most likely be operating with revenue deficiencies. If a Montana Electric filing is made it would be due to significant investments that we made for improved system reliability and capacity through our DSIP, for those any of you who have not heard of DSIP that’s our Distribution System Infrastructure Plan and our other activities in Montana including our transmission build outs to improve reliability and capacity.

In the South Dakota side, a South Dakota electric filing would be driven by our environmental estimates and environmental control installations that are jointly owned facilities as well as by the construction of New Aberdeen Peaker which is I mentioned we have had needed to comply with capacity reserve requirements as well as our ongoing investment in this system. One of the regular filings that we make each year in Montana is our electric and natural gas tracker. Each year we submit electric and natural gas tracker filings for the through-up and supply costs for the preceding 12 months period and recovery of projected supply cost for the upcoming 12 months and the Montana commission reviews such filings and makes such cost recovery determination based on whether or not our supply procurement activities were deemed to be prudent.

On item to note here our tracker flings included requests for demand side management or DSM loss revenues. As Brian mentioned one of our significant negative earning drivers quarter-over-quarter relates to lower DSM loss revenues recovered through the tracker this year. In the second quarter last year we had received the final order on our tracker and were able to recognize previously deferred loss revenues in that case of $6.6 million.

With the final order last year the commission also granted us the ability to include forecasted lost revenues instead of historic lost revenues. However along with this change the commission requested a detailed independent study supporting the lost revenues we had requested and that study has since been provided. So we collected DSM lost revenues based upon the approved energy supply tracker interim rates but we defer a portion of these revenues pending a final order.

As of June 30th we have deferred revenues of approximately $2.5 million related to DSM loss revenue collected in 2013. And also $4.9 million collected during 2012, so 7.4 million in total. Hearing was held in June and we look forward to a final order sometime during the last half of 2013. To continue with our practice of updating on our entire pipeline of projects, investing in service to our customers with Spion Kop and the Aberdeen peaker both online and producing energy for our customer, the next likely large addition to our electric supply portfolio would be a natural gas generating asset in Montana to help replace the power we are currently procuring from third-parties.

As we continue to evolve more toward a vertically integrated utility in Montana a natural gas combined cycle combusted turbine or CCCT has been identified as a type of generation asset that can provide the flexibility to best serve our customers into the future. The benefit of this kind of an asset was the despatchability provision of ancillary services base load power and peaking power. And we do of course continue to evaluate what we think of as opportunistic acquisitions where we are moving forward on the development of the CCCT. To that end we have several meetings with the potential engineering procurement and construction contractor and are in the process of conducting a siting study for nominal 250 to 300 megawatt combined cycle plant in Montana.

The siting study improves the review of the availability of electric and gas transmission infrastructure land, water, ease of permitting necessary infrastructure such as roads, railroads and a course of skilled workforce. We are currently conducting specific onsite investigation concerning these subjects. We expect to complete the siting study by the end of the year, to be up followed quickly with the identification of specific technology. Consistent with the timing set forth in our 2011 Montana biennial integrated resource plan we anticipate 2018 commercial operation date for this new build option. We’ll continue to update you on progress as appropriate but you can also expect our 2013 Montana electric resource plan to set forth further details regarding the project. And we plan to file this resource plan with the Montana Commission in about December of this year.

As a result of the RFP we issued in May we’ve also signed several contracts with multiple counterparties at favorable prices for our customers. These new contracts will help to offset the rollout of the current contracts we have with PPO Montana. And we also plan to layer in additional short-term energy contracts through future competitive solicitations and this process will help to maintain maximum portfolio flexibly until we are able to bring a more permanent generating solution online for our customers.

On the electric generation front we continue to move ahead on our metal projects and jointly on base load plants that serve our South Dakota customers. We are in the final year of construction on the emission reduction project at the Neal 4 plant in Iowa. There are 8.4% share of the total project as estimated to come in between $25 million and $30 million and is expected to be completed early next year. And we are also the joint owners of the Big Stone plant in South Dakota and under the State Implementation Plant approved by the EPA in May last year the Big Stone plant is required to install and operate a new BART or best available retrofit technology, a compliant air quality control system to reduce emissions. Current estimated project cost for our 23.4% shares between 95 million and 110 million and this is expected to be operational by 2016. And we did also kick off the actual dirt work on that project just a few months ago.

We do have one other much smaller environmental project in New York this is our jointly owned Coyote plant in North Dakota. And the North Dakota State Implementation plan requires the facility to reduce its emissions current estimate for our 10% share of the project is about $1 million and the equipment should be in operation by 2018.

While new and investment growth on environmental project I do want to take a minute to discuss the outage at another jointly owned generation plant in Montana. I don’t have much to offer in terms of update since our press release on the 15. But as most of you know Colstrip 4 tripped offline on the 1st of July and upon initial inspection damage to the stator alerter assembly was evident. PPO Montana is the operator of the entire Colstrip complex and they are developing a repair schedule and estimating the unit will remain out of service for at least six months.

The estimate for total repair cost for the unit is about $30 million and it’s expected that the majority of these costs will be capital costs. And it’s important to keep in mind the question participates in a typical sharing agreement with PPL between units three and four. And as such NorthWestern’s 30% share of both costs and output is effectively limited to 15% of each unit, making our share of the repairs about %4.5 million. We’ll continue to receive 15% of the output from Unit three and that’s 111 megawatts at full capacity.

Power supply group did a really nice job of immediately procuring replacement power for the term of the outage and the costs related to the power purchases will be included in the monthly electric cracker for proposed recovery subject to prudence review by the Montana Commission likely in mid-2014. Turning back to the natural gas side of supply portfolio in Montana with first two gas acquisitions we were able to serve about 9% of our 20 bcf annual retail natural gas needs in Montana. The pending Bear Paw South acquisition will increase our own reserves to approximately 37% of our current annual gas needs retail gas needs in Montana.

As we said before we believe that by only 50% or so of our retail gas needs we can provide customers long-term price stability at an excellent hedge against a potentially all of our gas markets. So as such we continue to seek opportunity acquire another 15% or so to reach our 50% target and potentially also incremental reserves as fuel for electric generation including at Dave Gates. Also within the gas producing assets these wells are declining annual production of about 8% or so therefore the need exists to continue to find new producing reserves to offset declining production.

Based on comments we’ve heard I know a few of you listen to the Commission’s work session way back on May 22nd and that provided the Commissioners the opportunity to comment on our 2012 gas procurement plan. And that plan relates to our targeted ownership parameters and on a 5 to 0 growth to commission issued what we thought was a very thoughtful comment later that was generally positive and supported owned reserves and we look to that later as guidance.

Turning now to our distribution operations, as part of our commitment to maintain a safe and reliable electric and natural gas system we continue to evaluate the condition of our distribution assets to address ageing infrastructure and other issues through our distribution system infrastructure project and related activity.

The primarily goals of these set are to include to reverse the trends in ageing infrastructure to maintain reliability to proactively manage for safety, to build capacity into the system and to prepare our network for the adoption of new technologies as those make sense. We are working on a variety of solutions and evaluating the addition, the implementation of additional technology to prepare the overall system for the next generation of technology.

As many of you know over the past two years we have been in the ramp up stage of these, have been very, very pleased with how those two years progressed. We are happy we made that decision and the first quarter of ‘13 marked what we would call the hard start for the remaining five years of the project. We are now in the second quarter full production. We continue to be very, very pleased with the project and excited to see the results already appearing in the field.

During ‘11 and ‘12 we utilized an accounting order from the Montana commission to defer approximately $16 million of expense during the phasing. The amortization of these expenses will be approximately $3.1 million annually over five beginning in ‘13. This amortization is an addition to the approximately $11 million of expense we plan to incur this year on the – for the use of, specifically in terms of use of capital spending we spend about $34 million in the ramp up phase and plan to invest another $253 million of CapEx through 2017. Based on our current plans along with the commission’s approval of the accounting we believe DSIP related expenses and capital expenditures will be covered in our base rates through our general rate cases.

You might be interested I would say the degree of engagement that commission in Montana has with this project we have in the several months we held two day long field briefings for members of the commission, their staff and for the Montana consumer council really covering all things DSIP. So that included an overview of all elements of the project, the project report, great presentation on aspects of project management and then site visits to both electric and natural gas applications and we sincerely appreciate the commission and the staff and the consumer council’s interest in the operational level details of this project.

Finally a brief update on the electric transmission side, Bonneville Power Administration BPA recently announced its plans to move forward with the environmental impact study on the Montana to Washington project, and this is incrementally positive news for the Colstrip 500 KV transmission line upgrade project, and the EIS of the BPA EIS is likely to take two to three years. As a result of this long lead time and transmission market uncertainties that we have discussed before we don’t plan to continue quarterly updates on this project at least until the EIS results are known and the market need is reassessed.

In the meantime we do continue to focus on both gas and electric transmission needs within our service territory. In fact we do have several upgrade and expansion projects in process that will serve to improve reliability and respond to customer growth. Two significant projects are indicative of these activities and these are the Jackrabbit to Big Sky Transmission 161 kV line. And this is an upgrade through very rugged territory along the Gallatin River and the new Columbus to Chrome 100 KV transmission line to respond to customer need and load growth in Southwestern Montana and we expect to spend approximately $80 million on these two projects between 2012 and 2017. We are also in a third year of a project to replace conductors on our 151 KV line in South Dakota. So these projects are included in our maintenance CapEx as disclosed in our 2012 10-K but they have been growing in significance over the past several years and I do think they are worth highlighting.

So I realize our list of activities is lengthy and that is just reflective of the fact we are paying attention to all the necessary aspects of the business to serve our customers. I do hope that with this update it’s a – tremendous effort our employees are putting forward every day to continue to focus on our mission in Northwestern are working together to deliver safe, reliable and innovative energy solutions that create value for customers, communities, employees and investors. And with that I will open it up to your questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we have a question from Paul Ridzon from KeyBanc.

Paul Ridzon – KeyBanc

Good afternoon, can you hear me?

Robert Rowe

Yes we can.

Paul Ridzon – KeyBanc

So just had a question on Colstrip the $4.5 million Northwestern share, most of that will be capitalized, did I catch that right?

Robert Rowe

Yes.

Paul Ridzon – KeyBanc

And then secondly just more color on what drove the expected tax rate down to the bottom of your previous range, is that’s just higher PTCs and capacity factor?

Brian Bird

Yeah I think after evaluating taxes after the end of the year and certainly after we provided the guidance early this year we felt that we would be able to achieve the lower end of the range.

Paul Ridzon – KeyBanc

Okay. Thank you very much.

Robert Rowe

Thank you.

Operator

Thank you. (Operator Instructions). And Brian Russo with Ladenburg Thalmann.

Brian Russo – Ladenburg Thalmann

Hi good afternoon.

Robert Rowe

Hey Brian.

Brian Russo – Ladenburg Thalmann

I just want to understand the guidance revision the $0.05 move up in the bottom and top of the range? It looks like $4.5 million lower depreciation yields, about $0.09 positive, then you had $0.02 of positive weather. So it looks like that’s being offset by the reduced transmission revenues associated with CS4 is that correct?

Brian Bird

Brian that’s partially correct. The other component of that I mean remember that the two reasons why we are increasing is depreciation studies and the taxes, okay knowing that we are going to be at the bottom end of our range. The two takeaways if you will first was some expenses you might have noticed our operating, general, administrative expenses were one up $300,000. We do expect some expenses that we didn’t incur in the first half of the year, this slide the second half of the year catch up on certain things in the transmission and distribution side of our business, some plant operation cost that we expect to be in the second half of the year. So timing if you will of those expenses, one of the reason that would push down if you will any increase in our guidance and the item is we believe there is going to be an impact at the Colstrip 4 outage on our transmission revenues in the second half of the year.

Brian Russo – Ladenburg Thalmann

Okay. And that outage is one time where the depreciation reduction and the tax rate is ongoing.

Brian Bird

Correct. And the one thing I should also point out Brian in your $0.02, remember the $0.02 we since that was favorable to us we take that out of our earnings to get to our adjusted GAAP. So don’t take the $0.02 into our adjusted guidance. We try to take out the benefit of that weather, get to back to normal weather on a going forward basis, if that makes sense.

Brian Russo – Ladenburg Thalmann

Right so your guidance excludes the $0.02 weather impact.

Brian Bird

Correct.

Brian Russo – Ladenburg Thalmann

Okay. Then is there any opportunity where you guys are contemplating raising the 50% target on you gas reserve ownership, something higher than that?

Brian Bird

I think in that regard Bob mentioned in his prepared statements that we have a goal up to 50% but also considering if that continued support if you will that we could also procure some of that gas for our generating units, particularly the Dave Gates.

Brian Russo – Ladenburg Thalmann

Right. So I guess the way we should look at any future acquisitions it could be more than that remaining 12% you need to get to 50% potentially?

Brian Bird

Yeah, Brian we should also point out as any acquisitions might not just be perfectly to get us from that remaining percentage to 50% too right. And I think also we have mentioned that you have a declining curve on these assets too. So in order to maintain at 50% we need to continue to buy assets overtime.

Brian Russo – Ladenburg Thalmann

Okay. Thank you very much.

Operator

(Operator Instructions). And at the moment we have no additional questions in the queue. I will go ahead and turn the floor back over to Bob Rowe for any additional remarks.

Robert Rowe

I better strike while the iron is hot. It was the shortest Q&A I think we have ever had thank you which clearly reflects well on the press release and the disclosures. So thank you all for your interest, look forward to visiting with you next quarter and in between.

Operator

Thank you. And once again ladies and gentlemen, that does conclude today’s conference. As a reminder a replay of today’s program will be available after 6:30 PM this evening and last through August 24th. To access the replay please dial 888-203-1112 and enter confirmation code 1856638. Once again, thank you for your participation. You may now disconnect.

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