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Vectren (NYSE:VVC)

Q3 2013 Earnings Call

November 08, 2013 2:00 pm ET

Executives

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

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

Jerome A. Benkert - Chief Financial Officer, Executive Vice President and President of Vectren Shared Services

Analysts

Paul Patterson - Glenrock Associates LLC

Sarah Akers - Wells Fargo Securities, LLC, Research Division

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

Operator

Good afternoon. My name is Rachel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vectren 2013 Third Quarter Earnings Call. [Operator Instructions] Thank you.

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

Robert L. Goocher

Thank you, operator. Good morning, and thank you all for joining us on today's call to review Vectren's 2013 Third Quarter Results. This call is being webcast and shortly following its conclusion, a replay will be available on our website at vectren.com under the investor’s link at the top of the page. Yesterday, we released our 2013 third quarter results, and this morning we filed our 10-Q. Copies of the earnings release, today's slide presentation and the 10-Q can also be found on our website under the Investors link.

As further described on Slide 3, I would like to remind you that many 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 opening comments on the third quarter and year-to-date results and our 2013 earnings guidance. He will then turn it over to Jerry Benkert, Executive Vice President and CFO, who will discuss in detail our Utility and Nonutility results. Also joining us on today's call is Ron Christian, Executive Vice President and Chief Legal and External Affairs Officer; and Susan Hardwick, Senior Vice President of Finance and Assistant Treasurer. Following our prepared remarks, we will be glad to answer any questions that you might have.

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

Carl L. Chapman

Thanks, Robert, and I would also like to welcome everyone to today's call. And as always, we appreciate your interest in Vectren.

Turning to Slide 4 through 6, Vectren's year-to-date consolidated earnings, excluding results of ProLiance, were $124.3 million or $1.51 per share compared to $129.7 million or $1.58 per share for the same period in 2012. Our results are down year-to-date. I am happy to say we are ahead of plan for the year and are again affirming 2013 consolidated EPS guidance of $1.90 to $2.10 per share that we set at the beginning of the year, with an opportunity to beat the $2 per share guidance mid-point based on year-to-date results.

Year-to-date, Utility Group earnings were $104.6 million, compared to $102.5 million in 2012, up $0.02 per share despite less favorable weather, negatively impacting our electric business in 2013 by $0.02 per share. Nonutility year-to-date earnings, excluding ProLiance were $19.9 million versus prior year earnings of $27.6 million. Our Infrastructure Services business has continued to perform very well delivering $35.2 million of earnings year-to-date, compared to last year's strong year-to-date total of $27.3 million. On the other hand, as expected, lower Coal Mining results year-to-date were principally responsible for the decline in Nonutility earnings through third -- though third quarter results from Coal Mining did continue the trend of improvement, we're seeing by our Coal Mining business in each successive quarter in 2013.

Before I conclude the discussions of our Coal Mining business, I would like to pass along the condolences of everyone here at Vectren to the family and friends of Larry Schwartz, the employee of our contract miner. Larry passed away in October after being involved in an unfortunate mining accident at our Prosperity Mine. Accident and prevention and safety has been, and always will be, the top priority at Vectren, including at our Coal Mining operations. Our goal is for every employee to go home every night the way he or she came to work that morning. Regrettably, that did not happen in this case. We continue to review our processes, policies and procedures to identify additional measures that might help prevent similar incidents in the future.

On Wednesday, Vectren's board declared a 1.4% increase in the December 2, 2013, quarterly dividend to $0.36 per share, an annualized rate of $1.44 per share. This marks the 54th consecutive year of Vectren and its predecessor companies have increased the annual dividend pay. Vectren is proud to be a part of a select group of publicly-traded companies that have achieved this level of long-term commitment to shareholders.

And with that, I'll turn it over to Jerry, to provide further details on year-to-date and quarterly results, and our plans for infrastructure investments at the Utility. Jerry?

Jerome A. Benkert

Thanks, Carl. Moving on to Slide 7 and an update on our Utility Group, as Carl mentioned, year-to-date Utility earnings were up approximately $2 million over the same period in 2012, despite about $2 million of unfavorable weather impacting our electric business compared to 2012. Improved results were primarily due to increased gas margins and lower interest expense, partially offset by higher O&M and depreciation expense.

To expand further on O&M, although higher than 2012 year-to-date, we continue with our goal of managing non-pass-through O&M cost to be generally flat to our 2012 targeted levels on an annual basis, over time. Thus, we will expect our O&M cost to be in the range of $275 million to $285 million annually. The range we are setting allows for some variability year-to-year, such as we expect with periodic scheduled maintenance cost for our electric generation fleet, while maintaining our overall objective of aggressively managing operating cost.

Finally, interest expense year-to-date is lower by just over $4 million reflecting lower interest rates on paying a long-term debt refinancing of nearly $400 million over the last 3 years. We now expect interest expense for the full year 2013 to be approximately $15 million less than it was in 2011, which has helped our Utility Group continue to earn at or near allowed returns.

Turning to Slide 8, I'd like to spend a few moments providing an update on our plan for Utility infrastructure investments. In August, Vectren filed with the Ohio Commission a 5-year plan beginning in 2013 for the acceleration of bare steel/cast iron replacement programs, an additional gas infrastructure improvements totaling $187 million. We anticipate current recovery of these investments including a full return under Vectren's existing Distribution Replacement Rider mechanism.

Also in Ohio, we filed our full 2013 CapEx budget as permitted under House Bill 95, less the amounts we believe are recoverable under the rider mechanism just discussed. House Bill 95 provides deferral treatment for depreciation and other cost, and a debt return associated with the capital investments made until the next base rate case with cash recovery following.

In Indiana, we expect to file by the end of the year, infrastructure cost recovery request for our Gas Utilities, taking recovery of capital investment under Senate Bills 560 and 251. As part of those requests, under Senate Bill 560, we will be filing the required 7-year infrastructure plan. Subject to the Indiana Commission's review and approval, we expect these plans will outline $800 million to $900 million of estimated construction costs over a 7-year period starting in 2014, that will result in significant and accelerated enhancements portions of our gas infrastructure systems. Senate Bills 560 and 251 allowed for timely recovery of 80% of depreciation, operating cost and a full return, and 20% deferral of such cost until the next base rate case.

When we rolled out 2014 earnings guidance in February, we will fully update our Utility CapEx forecast, including any changes to investment levels expected to be required for an environmental compliance pertaining to our electric generation fleet. Overall, we continue to expect our annual Utility EPS growth target will remain at approximately 3%, driven by recoverable investments in our Gas Utility businesses.

Moving on to Slide 9 in the Nonutility group. Infrastructure Services delivered great results for the quarter and has now contributed year-to-date earnings of $35.2 million compared to $27.3 million in the same period of '12, while third quarter earnings were $20.4 million compared to earnings of $15.9 million in 2012. Demand for both Transmission and Distribution work remains strong in the quarter. Some of the higher demand related to distribution customers catching up from the slow start to the year, due to the cold weather and rain.

Transmission results continued to be driven primarily by pipeline integrity work, although share-related work continues to be a growing contributor as well, especially in the Bakken Shale basin. Neither showed signs of slowing down until winter weather comes into play. Based on year-to-date results, we now expect the full year 2013 results for Infrastructure Services to exceed 2012's record level of $40.5 million. We continue to be very enthusiastic about the business environment for Infrastructure Services.

Also on this slide, you will see Energy Services had a year-to-date loss of $2 million versus year-to-date earnings of $900,000 in 2012. The performance contracting market remained soft, though we were able to secure additional new contracts in the third quarter. As an example, we won a $50 million contract to implement a Federal Utility Energy Services contract through a partner, Alabama Power, for a project at Fort Rucker in Alabama. The work at Fort Rucker will include upgrades to lighting, HVAC and other equipment throughout the base.

Finally, we do expect the fourth quarter to be stronger, and to include additional 179D energy efficiency tax deductions that will expire after 2014 -- 2013.

Now on to Slide 10. Year-to-date Coal Mining reported a loss of $12 million compared to breakeven results in 2012. As Carl mentioned earlier, third quarter results continued the trend of improvement, and we've seen by our Coal Mining business in each successive quarter this year. That trend is directionally important as we head into 2014.

Turning for a moment to focus on our culture and safety at the mines. Even though the scope and frequency of MSHA inspections is up in the industry, the number of citations at Prosperity dropped by 30% for the 12-month period ended September 30, 2013, as compared to the prior 12 months. However, over the course of 2 inspections at Prosperity in October, MSHA issued a number of what's called unwarrantable failure citations that we are currently evaluating and will likely challenge.

Though not indicated at this time, if Prosperity will continue to receive an increased number of elevated citations, the mine could be designated pattern of violation or POV status, which would result in more frequent shutdowns of affected areas of the mine and thus, increase production costs. We will closely monitor this situation. But be assured that relative to our mines, our Utility businesses and the company as a whole, we have very high standards of safety. And we continually seek to improve safety in our work environment, as Carl mentioned earlier.

Stepping back and again focus on quarterly coal results. Reduced losses in the quarter were driven primarily by improved productivity at the mines. As evidenced by cost per ton in the quarter of $43.87, an improvement of approximately $4.50 versus third quarter of 2012, and approximately $3 per ton compared to the second quarter of '13. Productivity improvement measures implemented at Prosperity are working, but further improvement is needed. Productivity is also improving, as expected, at Oaktown 2 as the production ramp-up continues. Thus in October, for example, MSHA approved deep cuts for one of the mining units at Oaktown 2 and we are awaiting approval for the second.

Operations at our Oaktown 1 mine continue to be successful. Production has been strong and the mine continues to build on its track record of great performance. With expected increases in total tons sold, and an increasing percentage of sales that will come from the 2 new lower cost Oaktown mines, we expect that overall average cost per ton should continue to improve.

So as things now stand, 2013 tons are sold out with sales of 6.5 million tons priced at approximately $43.50 a ton. Additionally, for 2014, we have sold 6 million tons, an average price per ton of about $44.50, which is out of the total expected production of 7.3 million tons in 2014. This leaves us just shy of the 85% sold threshold that we typically target going into a year, and which allows us the flexibility to satisfy potential increased delivery requirements for existing customers or for spot sales opportunities.

The 2014 tons sold to date include 600,000 tons that have been verbally agreed upon, but the contract is yet to be signed. Also included is an expected 2.1 million tons of sales at Vectren's Electric Utility, up from 1.8 million tons that are expected to be delivered in 2013.

Looking a bit further out, we have 5.2 million tons sold for 2015, and a price of approximately $46 per ton, again, including the 600,000 tons verbally agreed upon. So for us, the bottom line is that better mining productivity and higher sales volumes to drive significantly improved Coal Mining results in 2014 and beyond.

Overall, we're very pleased with quarterly and year-to-date results and we are pleased to affirm guidance today as we have done throughout the year. And as Carl mentioned, we are also very proud of our record of increasing dividends per share. And finally, we remain pleased with the performance of our Utilities, and excited about the future of the Nonutility segment, led by the great success of our Infrastructure Services business.

Operator, that concludes our prepared remarks, and we are now ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from the line of Paul Patterson of Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

Just -- I wanted to touch base with you on -- and I think you asked this actually, last quarter as well, about the outlook for coal in terms of whether it could be breakeven or maybe even positive given the numbers that you're looking at. I mean, how should we think about cost per ton in 2014? Just at least in terms of trend?

Carl L. Chapman

Well, we have not given any guidance, again, for cost at this point. But what Jerry shared was, obviously, that we expect improvement in 2014 and beyond. And on the cost side, one of the things that we remind you of, first of all, we are focused on continuing to improve the cost at Prosperity, and also as the Oaktown mines continue to ramp-up at Oaktown 2, and just as we continue to ramp-up at Oaktown 1, the percentage coming from the lower cost mines will be higher. So we've not given any guidance, but we'll just leave it at those 2 comments.

Paul Patterson - Glenrock Associates LLC

Okay. In terms of -- could you give us a flavor for, I guess, if you were to breakdown the cost per ton by mine, what they would be? Prosperity versus Oaktown 1 and 2?

Carl L. Chapman

Yes. We just never have provided the details of cost by mine and really don't intend to for obvious competitive reasons. It just doesn't makes sense for us to do that.

Paul Patterson - Glenrock Associates LLC

Okay. Let me ask you this. In terms of the MSHA citations and what have you, could you elaborate a little more about what those issues were that might be challenging?

Carl L. Chapman

Well, I don't think you want to get into the details. We basically had 2 inspections. We already commented, Jerry did, that we had been seeing a drop in citations. In fact, a fairly substantial drop over the last 12 months. We happened to run into 2 inspections in the month of October, where a number of the particular type of citations were issued, and we'll just have to see how that unfolds. We have not changed the way we're running the mine in any way, shape or form, and so we just have to see how it unfolds. And we've simply noted here, the risk, if those were to be beyond that. What we've experienced in the past, we don't anticipate that at this point. But again, we'll continue to monitor and see what happens. But we have not changed anything and that's why we shared with you that we've actually seen citations drop pretty substantially.

Paul Patterson - Glenrock Associates LLC

Okay. In terms of sales growth at the Utility, whether adjusted, I saw your heating degree days and what have you versus normal -- I mean, cooling degree days. But just year-to-date, how should we think about your electric sales growth weather adjusted, normalized -- weather normalized, if you follow me?

Carl L. Chapman

Well, we've shared that we are continuing to see reductions in the residential and commercial area because of our efficiency programs and additional conservation by customers. Our industrial load is really pretty close to flat, I mean there is a small drop in both the quarter and year-to-date but not very much. And we're really not seeing any big changes from what we've experienced for quite some time.

Paul Patterson - Glenrock Associates LLC

You mentioned your cost controls, you mentioned your trackers and what have you. When is the next time you guys think you might have to go in for a rate case? Do you guys have any sense about that?

Jerome A. Benkert

Paul, we just don't have that in our near-term plans. We really are -- we're pursuing these filings, as we said, around the infrastructure trackers. We're highly focused on the cost control. And obviously, have more spending on the natural gas side of our business ramping up. And so the regulatory and legislative mechanisms will be very helpful there. Generally, we're trying to hold the line on CapEx spending to a great extent on the electric side, where we spent more in the past. And certainly, the financing costs and being able to reduce this over time had been very helpful to us. So being in a pretty good position with authorized returns at sort of the starting point. We expect to be able to continue that plan for some time.

Operator

Your next question is from Sarah Akers from Wells Fargo.

Sarah Akers - Wells Fargo Securities, LLC, Research Division

A question on Prosperity. With the pattern of violation status, would that result in discussions around shutting down the mine or do you just work through those challenges at a higher cost temporarily?

Carl L. Chapman

Well, it really would depend on exactly how that unfolded at this point. Of course, we're not in that situation. We simply alerted you all that, that is a situation that's out there. And at this point, I don't think we have any specific analysis not knowing what a regulator might do. So at this point, all we've said is it can cause -- or would cause a shutdown, and that would cause that increasing cost. But we don't have any comment at this point on anything beyond that.

Sarah Akers - Wells Fargo Securities, LLC, Research Division

Okay. Sounds good. And then on Coal, on the cost per ton, you mentioned some of the positive drivers. Are there any cost pressures associated with the increased regulation or other factors that we should keep in mind looking into '14 and '15?

Carl L. Chapman

Well, we were just, again, saying that we've reminded for some time that MSHA continues to be very active, although we didn't know that our citations were down at Prosperity. So MSHA activity is really probably the #1 issue on anything on cost. And we like to always say, we're going to have a safe mine. It doesn't have a bearing on what MSHA does. We would just simply say that MSHA has their own view of activity, and that can have an impact on cost. We're going to continue to have our mines run the way we want them to be run and that's quite safely. But I don't think there are any big cost pressures. There's always labor increases out there, but not huge cost pressures other than just increased activity by MSHA.

Jerome A. Benkert

And another example, we talked about this for a moment, but in regard to MSHA, just the ability to drive deeper in for the cuts, as an example. They've got some control over when they release and approve those. So there are some areas just around how we process and what the procedures are underground or clearly, they can have an impact to make it more productive, if you will.

Carl L. Chapman

Yes. And as we shared on the slide, actually, we got cut -- we got approval for deep cuts on 1 of the 2 sections at Oaktown 2, and we're awaiting the second one.

Sarah Akers - Wells Fargo Securities, LLC, Research Division

And then lastly, can you comment just on general Coal dynamics, where we are on stockpiles, the willingness of coal plant owners to ink new agreements, things along those lines?

Carl L. Chapman

Yes. We all know that base in the stockpiles are still a bit heavy. And what we really are seeing is not so much anyone being concerned about contracting period, but it's just in the timing of contracting. Because the piles are still a bit higher that simply gives the customers the opportunity to continue to delay the decision for locking in contracts for the next few, call it, years or if there was a spot deal for the next few months. So that increased inventory does have an impact on that. We noted, of course, that we have locked up some additional tons, one of it is only verbal, but we feel good about it in this quarter or in the last few days or weeks, and so we continue to look at selling additional coal. But again, we are in a situation with the higher inventories where customers can continue to delay just a bit.

Operator

Your next question comes from Matt Tucker from KeyBanc Capital Markets.

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

First question, I guess just bigger picture. Could you talk about how Coal Mining fits in with your longer-term strategic plan, when you think about the business model and what you consider to be the core businesses going forward?

Carl L. Chapman

Yes. I think what we have routinely shared is we obviously have continued to just focus on where commodity business fit into our portfolio. But the primary focus for us is the same. We're very disciplined buyers and sellers. And what we look at in all of our businesses is we really look for them to be able to provide the return that we expect. In the nonregulated side, that's somewhere in the 12% or 15% range on an internal rate of return basis, and we look to move our coal business back to that point. If we were unable to do that for some reason, then we might well look at something different. But right now, as you know, we're very focused on improving the cost to Prosperity, selling the coal and continuing to ramp-up Oaktown 2 and run Oaktown 1 at the levels we've been able to get it to.

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

That makes sense. I guess do you have a timeline in mind for Coal Mining to get it back to the levels of return before you consider exiting the business?

Carl L. Chapman

Yes. No, we do not have any specific timetable in mind.

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

Just curious where the citations in October you mentioned related to any of the changes in mining equipment or other cost reduction initiatives at Prosperity?

Carl L. Chapman

They were not. And we would want to make it crystal clear, as we've made changes in the mine, we focus first on safety and second on cost. And so we're very focused on cost, no doubt, but those issues have absolutely nothing to do with anything we had done to try to reduce cost.

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

That's good to hear. You mentioned obviously that the cost have come down quite a bit year-over-year. How much lower do you think, realistically, you could get your cost per ton? Do you have a goal in mind?

Carl L. Chapman

Yes. We did not have a goal that we have shared publicly at this point. Obviously, we're focused on the improvements at Prosperity. The continued -- Oaktown 1 is still in a mode of improvement and then Oaktown 2 with the ramp-up.

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

Okay. Shifting gears on the rider proposals, the various proposals you have outstanding. Nothing is automatic, it's always a process. But do you really anticipate getting much push back on any of those plans or would you expect them to get approved largely as proposed?

Jerome A. Benkert

That's a great question. In Ohio, we're sort of second round, second year. Some of those plants have been in place for awhile. The distribution pack the tracker for bare steel/cast iron has been running for a number of years now, but we're extending and stepping up the size of what's being proposed there. In both states, I would say, it's our normal pattern and we spent time with commission staff and with other parties in the case, as we prepared to make our filings. I think -- again, I think Ohio is a much more established pattern, and so we don't anticipate any surprises there at all. In the case of Indiana, we've had trackers previously, certainly on the electric side. For over a decade, we used Senate Bill 29, and so we certainly have that experience under our belt. But 251 and 560, specifically, are new -- from new legislation. There haven't been any orders come out. NIPSCO's made an initial filing under 560 and we've certainly spent time looking at some of the positions taken by parties in that case, as well as we've had some initial conversations as we prepare to file. So again, you don't have that sort of the history of orders explicitly, but we certainly believe that we're filing for things we should be filing for and we're very optimistic.

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

That's very helpful. And just lastly on the interest expense at the Utility, clearly, has been a major tailwind, as you pointed out, and there's been a lot of redemption and issuances just over the past few months. I guess, my kind of back of the envelope math, it looks like interest expense could be ticking up next year relative to this year. Did that sound right? And do you have any additional opportunities next year to get a higher cost debt?

Jerome A. Benkert

Yes. So maybe let me answer the second question first. Regarding additional opportunities, they are more limited next year. We may have -- we're probably be looking at and have some maturities on -- actually, on the non-regulated side that will be showing up over the next several years that will consider how to go back to the market for financing those. The most recent debt piece that was done, $150 million, that's very recent. So I mean, you clearly don't have the annualized savings or reduction in the 2013-year from that offering that we just did. That's probably it. Did I get to your comments or questions?

Operator

[Operator Instructions] And your next question is from Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

The 179D tax deduction and your outlook on the fourth quarter and stuff, could you elaborate in terms of how that tax deduction works? And just the mechanics of sort of what kind of benefit we might be seeing and how that works going forward in future years?

Carl L. Chapman

Yes. What Jerry shared, I think, was that -- in his comments, the 179D credits do expire as of now at the end of '13. The industry has looked at trying to see if those can be extended, but nothing on that at this point. So they expire end of '13. I don't think we've really given the dollar amounts. The credits work just as you might expect any credit to work on the return. But in terms of just looking at our data from the past and looking at our data now, if you get into the metrics of Energy Systems Group, we obviously give both EBITDA and net income. So that would give you at least one area you can take a look at to give you some sense of the size of those.

Paul Patterson - Glenrock Associates LLC

But we shouldn't expect them obviously past this year, correct?

Carl L. Chapman

You should not expect them as of now past this year. Again, the industry...

Paul Patterson - Glenrock Associates LLC

Unless something changes in the tax code. Okay, I got you.

Carl L. Chapman

Yes. Unless there was an extension based on any activity by the industry or others, but they do expire at the end of '13 otherwise.

Paul Patterson - Glenrock Associates LLC

Okay. And you guys mentioned -- I mean, let's assume that the do expire, hypothetically, and that the -- you guys mentioned that you're continuing to develop strategic -- strategies in terms of the future of this business and I was just wondering what -- could you elaborate a little bit more from what you mentioned about this?

Carl L. Chapman

Well, what we've shared in the past is we see a real nice focus in the federal area. There's a lot of opportunity there because of the Better Buildings Initiative by President Obama. We've shared before that we have Utility, Energy and Service contracts. That our relationships, jerry mentioned that, in fact, we had a contract this past quarter with Alabama Power related to Fort Rucker in Alabama. And so the federal is a nice opportunity. We continue to believe that on the other part of the business, what's called MUSH, municipals, universities, schools and hospitals, while slow now, a lot of spending by the electric utilities across the country should drive electric rates up. And of course, there are various projects that are being deferred will eventually being dealt with alongside higher electric rates, so we see some recovery there. And then there's just a lot of activity and opportunities in this business, whether it be distributed generation or other renewables. So we think all of those areas are ripe and we'll get into more, particularly in the rollout in '14, exactly how we see those various areas unfolding.

Paul Patterson - Glenrock Associates LLC

Okay. Fair enough. With respect to the infrastructure business. It looks great and everything. I just wondered if you could just maybe give a little bit more color as to what you might be seeing in '14 and beyond. I mean, it does sound pretty exciting. And I understand your optimism but this isn't much -- if you could just elaborate a little bit more I think that'd be helpful about what we quantitatively might see.

Carl L. Chapman

Well, quantitatively, of course, we're not going to share any information today. But what I would tell you this we have said forever exactly what's going on in this business. When we made the acquisition on the transmission side in 2011, we said that would be driven by a lot of repair by the big pipelines and also by shale, and that's exactly what we're seeing. And then as we've shared for several quarters, a big ramp-up by a lot of the local distribution companies, in fact, Jerry mentioned ours. Now, obviously, Miller has to bid on that work, and it would be competitively bid. So I'm not suggesting Miller will get all of Vectren's work, but Miller certainly should get some based on bids. And so whether it's Vectren or other local distribution company, the big ramp-up are related to bare steel/cast iron and all the activity coming out of the San Bruno incident by the federal regulators, those issues are all in place. And so we really think that we're in a very long cycle here in the spend by both the transmission customers and the distribution customers.

Paul Patterson - Glenrock Associates LLC

I hear you all on that. And I guess we're looking forward for rollout when you give us more on that. Just finally, in terms of Prosperity, somebody was just asking about shutting it down. Do you guys have any numbers on the reclamation liability or any exposure with respect to mean -- is that what that actually might mean if that were to happen?

Carl L. Chapman

We don't have any numbers to share. I mean, obviously, it is an underground mine, it's not a service mine, so there are big differences in that regard. But we wouldn't have any numbers to share today.

Operator

[Operator Instructions] Your next question is from Matt Tucker from KeyBanc Capital Markets.

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

I just wanted to follow-up on Infrastructure Services. Are you able to give us any more sense on how much of the work in 3Q you think was catch up from earlier in the year?

Carl L. Chapman

We don't have a dollar amount, but the question on the distribution side, there was a pretty substantial amount of that. You may recall on the transmission side, we actually worked quite a bit in the first quarter and our numbers were much better than we had expected because we did have quite a bit of work. So there would be catch up from the distribution side, but I don't think we have a number to share with you today.

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

Okay. And I guess 2 more questions here. One, it looks like your blanket contracts and their backlog have increased pretty substantially since the fourth quarter. I was curious kind of what kind of customers that's coming from existing or new customers? And then 2, do you have blanket contracts in the shale work or is that just with utility-type customers?

Carl L. Chapman

Well, the latter question, there are blanket contracts although they're very different. But there are blanket contracts that exists and they're, generally, I would say a shorter period of time in the shale. In terms of the ramp-up, I think we would say it's been pretty broad. We've seen some nice pick up in lots of different approaches for all the reasons that I shared earlier. I don't think there's anything unique beyond what I shared just a little bit ago as to what really drives, what's going on in both the distribution and transmission side.

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

Fair enough. Although it does seem -- you look at your revenue expectations entering this year, it seems like the pace isn't well ahead of what you were expecting. Could you talk about kind of the source of what's been surprising to the upside for you guys this year?

Carl L. Chapman

Well, again, it's been pretty broad. Jerry shared that, not only is it about repair, but it's also been about the Bakken Shale. And we've had nice opportunities in both areas. And so, also, you see some activity of other states approving some of the trackers like Jerry went through that Indiana and Ohio have, and now will have an impact on the pace of distribution work. So it's been pretty broad base. I don't think it's a single area. And you're correct, it has been stronger than what we expected at the start of the year.

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

And lastly, I think the last time you gave us kind of a revenue guidance for the business, it was something like $670 million. I'm guessing that's stale at this point. Would you be able to update that?

Carl L. Chapman

Yes. I don't think we're prepared to update a revenue number today. It is stale. Jerry already shared in his comments earlier that -- and we believe we have the real opportunity to beat last year's record. So that would be stale from what we shared, but it's not a number we're prepared to share today.

Operator

There are no further questions at this time. I will turn the call back over to Robert Goocher.

Robert L. Goocher

We'd like to thank everyone for joining us on our call today. On behalf of our entire team, we appreciate your continued interest in Vectren. And for those of you, as Matt mentioned, that are attending EEI Financial Conference next week, we look forward to seeing you there. With that, we'll conclude our call for today. Thanks, again, for your participation.

Operator

Ladies and gentlemen, this concludes today's conference call. And you may now disconnect.

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