Eugene Bissell - President and Chief Executive Officer
Peter Kelly - Chief Financial Officer of UGI
Lon Greenberg - Chairman of the Board of the General Partner
John Walsh - Vice Chairman of the Board of the General Partner
Robert Krick - Vice President, General Counsel, Corporate Secretary of the General Partner
Darren Horowitz - Raymond James
Ryan Rosenthal - Sidoti & Company
John Hanson - Presidios
Adam Rothenberg - Zimmer Lucas Partners
AmeriGas Partners, L.P. (APU) F4Q09 Earnings Call November 11, 2009 4:00 PM ET
Good day, and welcome everyone to the UGI and AmeriGas Partners’ fourth quarter fiscal year 2009 earnings results conference call and web cast. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Bob Krick, Vice President and Treasurer, please go ahead sir.
Well, thank you Cynthia and good afternoon, thank you all for joining us today. As we begin let me remind you that our comments will contain certain forward-looking statements which the management of UGI and AmeriGas believe to be reasonable as of today’s date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict and many of which are beyond management’s control.
You should read the annual reports on Form 10K for a fuller list of factors that could affect results, but among them are adverse weather conditions, price volatility and availability of all energy products including natural gas, propane and fuel oil, increased customer conservation measures, political, economic, legislative and regulatory changes in the US and abroad, currency exchange rates and competition from the same and alternative energy sources.
UGI and AmeriGas undertake no obligation to release revisions to these forward-looking statements to reflect events or circumstances occurring after today. In addition, our remarks today will reference certain non-GAAP financial measures for fiscal 2009 that management believes provide useful information to investors to more effectively evaluate the year-over-year results of operations of the company in fiscal 2009.
These non-GAAP financial measures, net income, net income per diluted share and net income per partnership unit and EBITDA, all excluding the sale of a storage terminal by AmeriGas in the first quarter of 2009 are not comparable to measures used by other companies and should be considered in conjunction with reported net income, net income per diluted share, net income per diluted partnership unit, EBTIDA and other performance measures such as cash flows from operating activities.
With me today are John Walsh, President and COO of UGI, Gene Bissell, President and CEO of AmeriGas and Peter Kelly, CFO of UGI, and of course your host Chairman and CEO of UGI, Lon Greenberg. Lon?
Thank you Bob, and welcome everyone. We were thinking of notifying you that we are extending the length of this call given Bob’s introduction and it keeps growing every year. Welcome everyone and I trust you’ve all had the chance to review our press releases announcing our 2009 results.
Both UGI and AmeriGas reported earnings which were consistent with our expectations and the public announcements we made a few weeks ago. Of course we include in our press releases a lot more detail about those results and I’ll leave it to others during the call to explain those details to you.
The release is also as you noticed I am sure repeats our earnings expectations for UGI and AmeriGas for 2010 which are also consistent with what we announced a couple of weeks ago as you probably expected it would be. We are obviously thrilled to have performed as well as we did during fiscal year 2009. As you know our earnings growth in UGI and AmeriGas far exceed our announced 6% to 10% target for UGI and 4% EBITDA growth target for AmeriGas.
The significant improvement in earnings for both companies was driven by unusually high margins in our propane distribution businesses attributable to a drop in whole sale product cost which occurred just about at the right time which is just prior to our winter heating season.
We discussed this phenomenon with you on each of our quarterly calls and we reiterated our sense during those calls that margins would during the course of 2009 and into 2010 normalize and those businesses during that time and they had in fact normalized and our guidance anticipates those normalized margins would continue into fiscal year of 2010. I’m not going to comment any further at this point, I will have comments later on our view of 2010 and beyond, but at this point I think I should turn the call over to Peter Kelly who will give you some flavor on our results.
Thanks Lon. As Lon covered in his remarks 2009 was an extremely strong year for UGI with our diversified model once again showing its ability to drive growth in both our earnings and dividends, and in my comments I would like to cover four items. First, our consolidated results for 2009. Second, some color on each of our major businesses, third our balance sheet, and finally our liquidity.
Our EPS for the year was $2.36 up over 18% from the $1.99 we reported in 2008 an extremely impressive result driven mainly by our propane businesses which benefited from significantly improved margins and to a lesser extend our gas utility which benefited from the acquisition of our central Penn gas utility in cold weather.
Turning now to our business segments results, AmeriGas’s net income contribution to UGI for 2009 was $65 million up from the $43.9 million reported in 2008. Included in this $65 million for 2009 was an after tax gain of $10.4 from the previously reported sale of its Californian propane storage facility.
The main driver of the improved profitability were high margins driven by rapid decline in whole sale propane costs earlier in the heating season. Retail volumes of 928 million gallons were down 6.5% from the prior year of the benefits of completed acquisitions were more than offset by the adverse effects at the significant deterioration in general economic activity and continued customer conservation. Weather although 2.5% warmer more than normal in 2009 was virtually the same as in 2008.
Overall, another outstanding performance from the AmeriGas team and Gene will have more comments on the performance in his remarks. Net income for international propane was $78.3 million versus the $52.3 reported in 2008. I would remind you that the international propane for 2009 include the previously reported after tax charge of $10 million related to our French Competition Authority matter.
Temperatures in Antargaz’s service territories were 2.9% warmer than normal in fiscal 2009 and 1.3% colder than the prior year. Antargaz sold 289.3 million gallons of LPG compared to 292.6 million gallons in 2008. The beneficial impact of the colder weather on volumes sold was more than offset by the effects of the deterioration of general economic conditions in France, customer conservation and competition from alternate energy sources.
International Propane’s exceptional improvement in net income reflects to a large extend the beneficial impact of higher than normal retail unit margins at Antargaz, which resulted from a rapid and sharp decline in wholesale commodity costs that occurred as Antargaz entered the critical winter heating season during the first quarter of fiscal 2009.
Net income from our Gas Utility was $70.3 million in 2009 compared to $60.3 million in fiscal 2008. Total system throughput for 2009 increased by 16 billion cubic feet to 149.7 billion cubic feet largely reflecting the acquisition of Central Penn Gas at the start of the year, and increases in cold market and retail delivery service volumes resulting from colder 2009 weather and year-over-year customer growth.
Weather in the Gas Utility service territory was 4.1% colder than normal and 7% colder than the previous year. Gas Utility net income increased through the acquisition of CPG, so this was partially offset by higher expenses associated with our environmental matters and pension expenses and systems maintenance.
Net income from our Electric Utility was $8 million in 2009 compared to $13.1 million in 2008. Sales of 966 gigawatt-hours were 3.9% lower than in fiscal 2008 as increased sales to residential heating customers were more than offset by lower sales to commercial and industrial customers as a result of the recession and lower weather-related air-conditioning sales during the summer of 2009.
Electric Utility reduction in net income principally reflects higher cost of sales lower sales volumes, and to a lesser extend higher operating expenses. Energy Services net income in 2009 decreased to $38.1 million down from $45.3 million reported in fiscal 2008. Greater total margin from peaking supply services and retail electricity sales were partially offset by lower electric generation total margin.
The decrease in electric generation margin reflected lower spot-market prices for electricity, lower volumes generated operating and maintenance costs, and other charges associated with the conversion of the Hunlock generating station from coal to natural gas. Higher fees paid to managed assets and higher short term financing costs also contributed to the reduction in energy services earnings.
Consolidated interest expense decreased slightly from $142.5 million in 2008 to $141.1 million in 2009. Our effective tax rate was comparable to our rates in fiscal 2008. Now, moving to our balance sheet; our consolidated debt at approximately $2.3 billion was up slightly on the $2.2 billion reported last year and our consolidated cash position was $280 million compared to the $245 million reported at the end of 2008.
Included in the $280 million at the end of 2009, we have about $103 million of cash available at our holding company to reinvest the growth. We would typically expect to generate on average about $110 million to $125 million of such investable cash per year.
Of the $2.3 billion of debt at the end of 2009, approximately $2.1 billion is long term debt. By business, AmeriGas had $865 million of debt, a reduction of $68 million from 2008. Utilities had $794 million of debt, an increase of $205 million over 2008 largely to finance the purchase of Central Penn Gas and the international business was approximately $623 million down from the $669 million reported at the end of 2008. We have no significant refinancing requirements before 2011.
From our property plans and equipment perspective we have nearly $4.7 billion in gross fixed assets and $2.9 billion in net fixed assets up from the $2.5 billion reported in 2008. Capital expenditures were $302 million with depreciation and amortization of $201 million. We are currently estimating that our capital expenditures in 2010 will be just over $350 million with most of this increase over 2009 being for the L&D expansion and the Hunlock electric generation repairing projects previously disclosed.
Turning to liquidity, clearly over the last year we’ve seen unprecedented volatility and uncertainty in the capital markets. Where our are traditionally conservative business approach including minimizing exposure to individual counterparties, hedging to reduce risk as opposed to generating trading profits and having available substantial lines of credits have stood us in [Inaudible]. We believe we have adequate liquidity to fund our requirements throughout all of our operating subsidiaries as we go into 2010.
In utilities we have a line of credit in place for $350 million, we have $200 million of financing capacity in energy services and $275 million in lines of credit at AmeriGas and at Antargaz we have a facility of €50 million.
At the end of September, AmeriGas had not used any of its revolver and have a cash balance of $60 million. Utility used $154 million of each revolver with cash available of $14 million. Antargaz have used none of its revolver and had $79 million of cash and energy services have an outstanding balance of approximately $31 million with cash available of $7 million.
So in summary, a very strong year with particularly good performance from our propane businesses supported by exceptional margins on a nice winter partially offset in all of our businesses by the impact of the economic downturn. All of our businesses continue to be well and once again the strength of our diversified business model along with our conservative business practices have allowed us to deliver both growth and income.
We continue to generate cash and find excellent opportunities both internally and through acquisitions to put that cash to work. So with that let me the pack the call over to John to discuss our operational performance.
Thanks Peter as Lon and Peter have noted 2009 proved to be a very challenging, but ultimately rewarding year for UGI. In addition to delivering record financial performance which achieved several critical milestones on major capital projects. I would like to review those achievements and comment briefly on progress on each of our three core business objectives.
As a reminder those key areas are growing our core businesses continuously improving operations and reinvesting cash in high quality projects. First on growing our core businesses.
Growth opportunities were tougher to come by in 2009, but our teams did an outstanding job of identifying and developing opportunities despite the dampening effects of the recession. Our energy services team achieved significant progress on its marketing program targeting small commercial customers. We added over 5500 new small commercial customers in 2009 using a combination direct sales and telemarketing.
We look for continued expansion of this program in 2010 as we add customers on new LDCs and push for further penetration on the systems currently served. Our gas utility had a very solid year for new accounts with over 12,000 new residential and commercial accounts added. On the residential side strong conversion and upgrade activity largely offset the slow down in new home construction.
Commercial activity was very strong early in 2009, but slowed in the final two quarters. We are anticipating continued sluggishness in the housing market in 2010 and believe that the primary growth prospects in the next few quarters will continue to be conversions and upgrades.
One additional point on utilities, on our July call, I referenced the pending conclusion of our rate cases for P&G and CPG. As we previously reported both cases were solved and subsequently approved by the PUC in late August with the new rates going into effect immediately.
Finally, on growth of Antargaz, cylinder product development and marketing problems continue to be very effective. Our calypso composite cylinder volumes have been growing steadily since its launch in 2007. In addition, Antargaz’s collaboration with Carrefour to supply a private branded cylinder has proven to be very successful.
Volumes for both the Calypso and the Carrefour cylinder products continue to grow quarter on quarter throughout 2009 despite the effects of recession on consumer spending.
Now on to continuously improving our operations. We have a strong focus on execution at UGI that covers a broad range of operational and administrative activities. We look for common ground across our businesses and then benchmark those activities to drive best practice and strengthen our operations.
Last quarter, I commented on our company wide focus on accounts receivable management. As the recession deepened late in 2008 we added additional credit resources, both internal and external, across trains of our team on credit and collection activities and communicated with our customers early and often.
I’m glad to report that we finished 2009 with our accounts receivable balances and agings in better shape than at the outset of fiscal year. Our processes have been strengthened and we are confident that we will continue the strong performance on accounts receivable in all other categories of working capital.
Now, I would like to discuss reinvesting cash in high quality projects. We achieved some notable milestones in 2009 on capital project development with the announcement of two of the largest capital projects in our history and two notable investments in renewable projects. Our two major capital projects for energy services are proceeding well.
These projects are the $120 million expansion of our LNG peeking facility near Redding Pennsylvania and our $125 million project to repower the Hunlock coal fired electric generating station as a larger gas fired facility. Both projects remain on schedule with Hunlock project completion anticipated in late 2011 and the LNG project in late 2012.
We successfully completed one major renewables project at the outset of 2009 and announced another in Q4. Our broad mountain landfill gas project which uses recovered landfill gas to feed an 11 megawatt power generation facility has been in operation for almost a year. This is one of the largest landfill gas recovery projects in the eastern U.S and qualifies as a tier 1 renewable energy resource.
During this past quarter we announced our participation along with PPL and Crayola in a 15 acre solar park that will be installed adjacent to Crayola’s headquarters in northern eastern Pennsylvania. When completed in 2010 this park will provide roughly 2 megawatts of power to Crayola and estimate more than a billion crowns a year.
While this represents a relatively small capital investment, we are excited about the opportunity to collaborate on this innovative project and enhance our position within the renewable sector. Our business development teams continue to pursue a range of investment opportunities, both acquisitions and capital projects. These opportunities include conventional and renewable energy projects. We will brief you on any significant developments on future call.
I would now like to turn it over to Gene who will provide with details on AmeriGas’s performance in 2009.
Thanks John. I’m glad to have the opportunity to talk about AmeriGas’s 2009 financial results and to comment on the progress we made on our core strategies. As Peter mentioned, AmeriGas achieved EBITDA of $341 million in 2009 compared to $313 million in 2008, or a 9% increase in EBITDA excluding the impact of the San Pedro terminal sale.
The recession and the related drop in energy prices really drove our results last year. After many years of double digit increases, in 2009 the wholesale cost of propane dropped by 50% from a $1.59 in 2008 to $0.77. The wholesale cost dropped faster than market pricing and as a result we were able to expand our margins. Diesel prices also fell by 35% which significantly reduced our vehicle fuel expense.
The other beneficial impact of the drop in propane cost was a significant reduction in our working capital investment. Comparing the balance sheet at September 30 to the prior year, our working capital investment dropped by $85 million, most of this drop is due to the lower cost of propane which translated into lower investment in accounts receivable and inventory. In addition to the impact of lower prices on accounts receivable, we reduced our investment by improving our receivables aging through an increased internal focus on credit and collections.
On the other hand the recession had an impact on our volume and our customer growth. Our volume was down 6.5% compared to the prior year. The weather was about the same as in the prior year so the decline was the result of customer conservation and the impact of the recession.
Our motor fuel business was the segment most affected by the recession. Our motor fuel– sales are primarily the customers that use propane to fuel their forklifts like FedEx, UPS, Roadway Express and home depot. The good news is that when these companies start to benefit from a recovery in the economy we should get a lift in our volumes although we are not counting on that for 2010.
Our operating expenses were up by less than 1% for the year. I would also like to comment on the progress we made on our core strategies of growth through acquisitions by leveraging our footprint through ACE and strategic accounts and by growing our traditional residential and commercial customer base through superior customer service.
We completed the acquisition of Penn Fuel right at the beginning of the fiscal year which had 15 million gallons, and I am pleased to say that the EBITDA from this deal has significantly exceeded our expectations. During the balance of the year we completed five additional acquisitions which will add 6 million gallons annually.
ACE achieved 3% growth in transaction volume through a combination of same store sales in additional locations. Strategic accounts felt more the impact of the recession since many of these customers use propane for their forklifts. We increased the number of locations we serve, but gallon sold actually decreased by 2% due to lower usage per customer.
Most of the location growth came from the roll out of our Burlington Northern Railway where we now serve over 3000 locations. Another important win this year was tractor supply, the largest retail farm and ranch store chain in the US where we now serve over 700 locations.
Due to market conditions we were not able to grow our traditional base of residential and commercial customers. We believe however that our continued focus on customer service will help us mitigate the impact of the weak housing market and weak economy on our internal growth.
In our 2009 customer surveys 96% of customers said they plan to stay with AmeriGas compared to 80% in 2008 and 94% of our customer said they would recommend AmeriGas compared to 89% in 2008.
We also made considerable progress this year toward our goal of achieving world class safety requirements. We were successful in reducing employee and vehicle incidents by more than 25% year-over-year, primarily through the use of new technology and new safety training and awareness programs.
Looking forward, we are projecting that earnings for fiscal year 2010 will be roughly in line with fiscal year 2009 excluding the terminal sale. With EBITDA in the range of $335 to $345 million.
For the year given normal weather we expect a slight increase in volume due in part to the acquisitions we completed last year plus growth from ACE and strategic accounts. As we’ve previously stated, for the full year we expect average unit margins to be roughly in line with last year. We will also continue to closely match our expenses to our volume.
In terms of our core strategies, we’ve already closed two acquisitions since the beginning of the fiscal year which will add over 2 million gallons and we are pleased with what we have in our acquisition pipeline.
I would like to conclude my remarks by thanking the employees of AmeriGas who helped us successfully integrate six acquisitions last year and complete the roll out of a number of new strategic account locations while continuing to get a high marks from our customers for our service and achieving significant improvements in our safety performance.
Before I hand the call over to Lon, I wanted to mention that AmeriGas will be holding a web cast on Tuesday, December 1 at 4.00 p.m. Eastern Time. The purpose of this presentation will be to provide investors with an update on AmeriGas much like the presentation we gave last year at UGI’s analyst day.
We will issue a formal press release announcing the web cast along with a dial in number in the near future, and I hope you can all attend the update on December 1st. With that let me turn the call back to Lon for some concluding remarks.
Thanks Gene and thanks everyone. As you heard from all the speakers today we are truly excited about our prospects for 2010 and beyond. Initially, we recognize that in fiscal 2010 we face the potential for a slight decline in earnings per share given the extraordinary performance we had in fiscal year 2009, I choked that up as a fitting example of the saying, no good deed goes on punished.
Our choices for the future and our strategies as we move forward reflects our commitment to grow the company’s profitability long term and we are not only committed to meeting our long term goal of growing 6% to 10% earnings per share for UGI and 4% EBITDA for AmeriGas,, but we are as optimistic as ever that we can do so.
Our optimism is founded on our long term tradition of building value by executing our well defined strategies for each of our business units and by redeploying our excess annual cash flow of nearly a $120 million in acquisitions and other growth opportunities.
We noted during the year a positive development for the company which has become more apparent as fiscal year 2009 progressed as John referred to. The creation of internally generated capital investment opportunities of scale, which allow us to deploy our investable cash. We told you about two of these and John reviewed them, the conversion of our coal based Hunlock generating station into a natural gas fired plant nearly three times in size and a substantial increase in the size of our existing LNG facility by quadrupling the size of it through a new tank expansion.
We are regularly, in addition, exploring other opportunities including some profitable alternative energy investments as well as investments in the infamous Marcellus shale infrastructure and marketing opportunities from that which allow us to capitalize on the expensive distribution, storage and customer based assets that we have in the eastern Marcellus shale area.
We continue also to explore opportunities to grow each of our business units by acquisition, as we always have, and as other companies evaluate their strategies for the future we expect to have opportunities for us that are consistent with our vision and our existing business units to grow our business through acquisitions. Similarly, AmeriGas also has a bright future as it exercises its growth strategies including its effective growth strategy through acquisition.
Peter mentioned our balance sheets remain very strong which assist us in financing the opportunities we see without stressing either our balance sheets or exceeding our cash flow generation over the long term. Lastly, our cash flow generation, as Peter said, has been the strongest it’s ever been at that is a great source of strength for our company.
So I hope this captures for you why we are optimistic about the future of our companies and why we look forward to discussing our prospects with you as this year unfolds.
We want to thank you for your support and the attention you have taken during this call, and at this point Cynthia we are ready for some questions.
(Operator Instruction) Your first question comes from Darren Horowitz - Raymond James.
Darren Horowitz - Raymond James
Just a couple of questions on AmeriGas for Eugene, you had mentioned slight up tick in 2010 volumes year-over-year, and I was hoping you could quantify that for us. It looks like you are already on a run rate to be about 2 million gallon higher from the acquisition recently, but if you could give just give us some insight into your expectations for base volume growth, that would be helpful.
It’s hard to quantify precisely, but it’s probably in the range of 1%, 2% something like that,
Darren Horowitz - Raymond James
Then also you had mentioned that you r excited about the acquisition pipeline, could you give us a little bit more detail there?
Sure. What we are seeing is there was a period of time where we just weren’t, we were talking it to lots of people and just weren’t making any progress. People’s expectations just seem to be out of line with what we thought was realistic and then, probably in the last 90 days, we started to see a real change, where people’s expectations are more in line with what we think makes sense and, so we are starting to do a number of deals.
A lot of the deals are relatively small, they are one and two million gallon sized deals, but those can add up over time and those can be very good deals for AmeriGas, because they are great blend opportunities typically.
Darren Horowitz - Raymond James
Okay and Lon, did I hear you correctly when you said you r still targeting about $100 to $125 million in acquisitions meant from AmeriGas.
No, not for AmeriGas, let me clarify. Our excess cash generation at the UGI level annually could look at a four year average going forward is probably on the order of $120 million a year. So that’s at the UGI level.
Then, acquisitions one of the things both Peter and I wanted to emphasize is, our balance sheets across all of our business units are an exceptionally strong decision by way of AmeriGas, because I know that interests you that debt to EBITDA levels are two and half, credit ratings are strong and we believe we’ve got ample room to finance transactions on our balance sheet as we move forward.
So, we are optimistic given the pipeline as Gene mentioned and we are comfortable that we’ve got the financial capability to carry out not only the small acquisition program that we have and as you probably know that’s $10 to $20 million gallons a year is kind of our target and we hope to grow that in that way. Then as medium size of events unfolding or larger ones should that occur, we think we’ve got the strength to finance those and not unduly stress the balance sheet going forward.
Your next question comes from Ryan Rosenthal - Sidoti & Company.
Ryan Rosenthal - Sidoti & Company
Could you address the scope of UGI’s opportunity to benefit from existing assets and potential to build new infrastructure to support Marcellus shale producers, specifically at a timing of such investment and a way to think about earnings accretion.
I’ll try to respond to that as clearly as I can, which you are going to find unsatisfactory because it’s just unfolding. We organized ourselves during the middle part of 2009 to begin to look at the Marcellus shale for the very reasons your question implies. In the eastern Marcellus shale area where there have been some nice gas volumes we’ve got two gas utilities, some pipeline assets, and we’ve got a fair amount demand which producers would like to capitalize on.
So, having both customers, pipes and pipelines, and very good local contacts we’ve been a natural entity for producers and others to approach to build infrastructure such as pipelines connecting the interstate pipelines, gathering systems putting the gas directly into our existing lines, so you don’t have to go use compressors to make it high pressure to put it into pipeline, you could put it directly into our distribution system which is a low pressure system, and wanting to get the gas to us so that we can distribute it to our customers, and not only the utility customers, but customers of our gas marketing businesses.
So, with all of those assets in place as I said Ryan we’ve been approached by a number of groups, we formed an internal group to try to see how we could capitalize on it. The plan to capitalize on it really will unfold during 2010 and I don’t have a firm idea as to how it will unfold. I’m very comfortable saying that we will be able to put something together that capitalizes on that opportunity given the assets we have including, by the way I forgot to mention storage assets.
That’s going to unfold as the year goes on and it certainly won’t be a big add at all to 2010 earnings. I think what you are going to find is what works with the plan that we can discuss more thoroughly during 2010, and begin to reap the benefits for ‘11, ‘12 and beyond.
Ryan Rosenthal - Sidoti & Company
Would that necessarily mean new investment or just capitalizing on the current infrastructure you have in the area?
I think it’s going to be both. I think we are going to have ample opportunity to invest in nice return capital projects and what will make those returns enhanced for us is that we have got the existing assets in place. So we’ll be a low cost alternative investment for producers to get their gas to the market.
Ryan Rosenthal - Sidoti & Company
Jumping to AmeriGas if I can here, so I wanted to get, just to clarify what the acquisition benefit was for fiscal 2010 versus last year, and also looking ahead it sounds like you weren’t able to acquire as much as you typically would like to what the target is for fiscal 2011 and if you have some additional, also give additional cash to use in that regard.
Well, Ryan, we had the one acquisition, the largest one Penn Fuel that we closed right on October 1. So we really got the full benefit of that in the fiscal year, and then during the year we added acquisitions that added about 6 million gallons on an annualized basis and then since the end of the year we have done two more deals that will on an annualized basis add about 2.2 million.
In terms of target we continue to target as Lon mentioned between $10 million and $20 million a year, and it all depends on the kinds of opportunities you get and a lot of those come towards the end of the fiscal year so it’s hard to predict it, but we are feeling better about achieving that target, higher end of that target this year than we did last year.
Ryan, just again to remind you I know you know this that AmeriGas has sort of a three prong or four prong growth strategy acquisitions you can figure generally we are going to try to add at least 1% in volume through acquisitions. Secondly, we expect some base business growth and that could range to somewhere between 0% and 1% if we achieve our goals, and then we’ve got growth through our strategic accounts and cylinder exchange ACE business, which again could be on the order of a percent or so.
So, we hope to grow EBITDA 4% by growing, that total volume growth is 3% maybe 4% total that occurs over a years should we do the acquisitions and then we expect to manage our expenses and have margins grow roughly in line with inflation over time that allows us to achieve that 4% EBITDA growth we have.
Ryan Rosenthal - Sidoti & Company
Okay great, and one final question I will turn it over to somebody else. Regarding your effective tax rate 30% in line with last year, just kind of looking forward for maintenance issue, is that looking like 30% going forward at this point in time?
Yes, it will be about the same.
(Operator Instructions) Your next question comes from [John Hanson – Presidios].
John Hanson - Presidios
Good evening. Couple of projects you have highlighted here. Do we have those revenues or contracts on those firmed up?
The generating plant as well as the LNG facility?
John Hanson - Presidios
Yes. The generating plant, our strategy on generation has been to hedge forward anywhere from 40% to 60% of our production, but with that facility being constructed and coming on line in 11 we haven’t done any of that hedging with regard to that facility at all.
So, as it comes aboard it will be a spot plan and as we get closer to the time when we are comfortable it will come aboard, well evaluate what the market plays and decide where along the spectrum of things do we want to hedge our electric production, and in total our electric production at that point in time will be about 250 megawatts comprised of the gas of the land fill gas, a relatively low cost large coal plants in Pennsylvania and this natural gas facility as well that we own a 100% of.
On our existing LNG facility, generally speaking, we also have a combination of some spot business together with business which is under contract for that, and it basically is a standby peak serving facility that will provide gas out of that facility for people who needed on the coal these winter days and they pay us a demand charge.
Our existing facility has three year contracts, five year contracts, 15 year contracts on it, and so contracts between say 3 and 15 years on it, and we would expect that the new facility will have a variety of contracts and some spot businesses. Well, we are in the market place trying to firm up some contracts on that facility. Now, we couldn’t do it until we got FERC approval and also began construction in order to have the right credibility in the market place.
So at this point in time we do not have contracts for it, but we are a couple of years away from completing that project, and so, we are comfortable by the time that projects comes online that a satisfactory portion of that will be demand charge based and then part of it will be spot based as well.
John Hanson - Presidios
Okay. Let me come back to the power plant. We’ve been kind of watching the markets there in that part of the country and some of the options and things like that. You mentioned the base load coal unit, had you have that contracted up for some of the options up into the upcoming years?
We’ve got some bilaterals on that facility that we put in place last year or the year before, we generally look at it several years, and I don’t know that we bid anything into the auctions yet on that facility. There are a number of other auctions that are coming up and we are evaluating market conditions as we go along to see if we want to serve those auctions as, in different fashions as you follow those auctions.
You can have a load following bid, you can have just a strip of 25 megawatts or smaller bid, 50 megawatts, and you can have other ways of bidding into that in the future, and at this point in time we don’t have those facilities tied up into anybody’s auctions yet.
(Operator Instructions) Your final question comes from Adam Rothenberg - Zimmer Lucas Partners.
Adam Rothenberg - Zimmer Lucas Partners
On the AmeriGas side, I saw that your maintenance CapEx was about $37.5 million for the year, that’s up over last year. I was wondering what maintenance projects are being done and what a good run rate are going forward?
In terms of the increase this year we have systems replacement projects that pushed up our maintenance capital. As you look to 2010 we would see capital increasing to about $82 million in total. Of that about $38 million would be maintenance cap that’s our projection. That’s up just a little bit from this year. I think this year we heard about $36.3 million and that’s primarily due to a little bit of extra safety capital spending we have to do to meet some regulatory requirements.
Adam Rothenberg - Zimmer Lucas Partners
Then the balance the 40 and change for growth CapEx, what is that being spend on, what type of projects?
Well, for us, that would be a combination of things it would include both tanks for new customers, would include ACE, our cylinder exchange business, strategic accounts is a fairly large portion of that. Those would be the big pieces. We make acquisitions we sometimes will have a little bit of growth capital included there too, bringing them up at this time.
Gentlemen at this time there are no further questions. Mr. Greenberg I will turn the conference back over to you for any closing comments.
I appreciate everybody’s attention on the call. We are looking forward to a year that’s going to be an excellent year for this company, perhaps our second best ever and also at the same time a year of pursuing the capital investments we talked about, some acquisition opportunities and other growth capital that can position us for the future, so that we are able to meet our commitment of long term financial goals that we have talked about.
So, we look forward to telling you about our progress as we end our first quarter and that should be in late January that we get back on with you. In the mean time we look forward to performing and talking to you in the near future. So, thanks again for your attention and talk to everybody soon.
Ladies and gentlemen this will conclude today’s conference call we thank you for your participation.
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