AGL Resources Inc. Q4 2009 Earnings Call Transcript

Feb. 4.10 | About: AGL Resources (GAS)

AGL Resources Inc. (AGL) Q4 2009 Earnings Call February 4, 2010 9:00 AM ET

Executives

Steve Cave - VP of Finance

John Somerhalder - Chairman, President & CEO

Drew Evans - EVP & CFO

Doug Schantz - President, Sequent Energy Management

Hank Linginfelter - EVP, Utility Operations

Analysts

Barry Klein - Citi

Carl Kirst - BMO Capital

Carl Kirst - BMO Capital Markets

Ryan Rosenthal - Sidoti & Company

Ted Durbin - Goldman Sachs

Craig Shere - Tuohy Brothers

Operator

Good day, ladies and gentlemen and welcome to the Q4 2009 AGL Resources earnings conference call. My name is Janita and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today Mr. Steve Cave, Vice President of Finance. Please proceed.

Steve Cave

Okay thank you Janita and good morning everyone. Thanks for joining us today to review our 2009 earnings results. The speakers on the call today will be John Somerhalder, our Chairman, President, and CEO and Drew Evans our Executive Vice President and CFO.

We have several other members of our management team here with us today to answer questions following the prepared remarks. As you know, we issued our earnings release and filed our form 10-K before the market opened. If you don't have copies of those documents you can find them on our website. Before we remove to the prepared remarks, let me remind you that our discussion today may contain forward looking statements, and that our actual results could differ materially from those projected in the forward looking statements.

The various factors that could cause such material difference are included in our press released and are more fully described in our 10-K filing. We also used some non-GAAP measures in describing our business and a reconciliation of those measures to the GAAP financial measures is available in our earnings release and our SEC filings and is available on our website. We'll begin today's call with prepared remarks and then we'll open the lines to take your questions.

And with that, let me turn it over to John.

John Somerhalder

Thank you, Steve and good morning. I will make a few brief comments about our 2009 results, and our expectations for 2010, before turning it over to Drew [giving] you the financial details for each of the business units. We had a very strong year, very good year of 2009. With strong performances from each of our business units. Our reported results of $2.88 per diluted share were record earnings for our company. These results reflected an exceptionally strong finish to the year, particularly as we saw significantly colder than normal weather in Georgia and in fact in most of our service areas. And volatility in the wholesale gas markets that created additional opportunities for Sequent to capture and create economic value. They also reflect significantly lower interest expense year-over-year which was primarily driven by lower, shorter term rates.

On our 3rd quarter call, we said we expected our 2009 earnings results to be at the high end of our guidance range, or slightly higher, assuming normal weather and an average level of volatility during the 4th quarter. However, the factors I just mentioned resulted in a very strong finish to the year for both SouthStar and Sequent. And drove earnings to a level that was about $0.10 above our expectation.

We have initiated 2010 earnings guidance in the range of $2.95 to $3.05 per diluted share. The mid point of this range represents about a 4% year-over-year growth in earnings. We should point out that in addition to assuming normal weather; our guidance for the year assumes no meaningful return to customer growth in our utility business this year. It also assumes a return to a more normalized level of earnings for SouthStar.

Before Drew discusses our business units' results, I would like to highlight a few of the recent successes we have had from an operational and from a regulatory standpoint. As you know, we have been working on two significant utility pipeline projects, and I am happy to report that both of these projects are now in commercial operations. In Virginia, we placed the Hampton Roads Crossing project into commercial operation during the first week in January. The pipeline connects the northern and southern areas of our Virginia natural gas distribution system, improving the reliability and access to supply for [B and G's] customers. And we also have long term capacity contracts also this pipeline to serve two utilities in the region.

In Georgia we put the Magnolia pipeline project in service back in November. You may recall that this project included the purchase of an undivided interest in some of Southern Natural Gas assets that we combined with existing Atlanta Gas Light distribution pipeline to create a firm transportation path into the Atlanta market from Elba island. The result there is that we now have an additional 84,000 dekatherms per day of capacity available to serve our customers.

We continue to execute around our regulatory strategy throughout 2009. In December the New Jersey board of public utilities approved our settlement agreement in the Elizabethtown rate case. Under the agreement Elizabethtown Gas will increase base rates by $2.9 million. Marking the first increase in rates there in seven years. The change in depreciation rates approved as part of the settlement will reduce our depreciation expense by $5 million. As a result, the total increase at EBIT associated with the settlement will be around $8 million.

In November, we filed a rate case in Tennessee, seeking a $2.6 million increase in base rates. We have not filed a general rate case in Tennessee in more than three years. And this filings requests the modest increase to cover rising operating costs and capital investments, we have made in that business. Our case also requests a rate alignment factor, which is a form of decoupling design to remove the [disincentive] for selling less natural gas and that allows us to promote customer conservation and energy efficiency programs.

In Georgia, we received approval in January and that was approval of Atlanta Gas Light's filing to spend up to $45 million under a new program to extend pipeline facilities to serve customers in areas where gas service is not currently available. The program will operate as part of our STRIDE initiative. And the $45 million is an addition to that $176 million approved last year for STRIDE for the first three years of that program.

The new program will not increase monthly rates for customers. As it will be collected through with three year extension of the existing STRIDE surcharge. More importantly, these investments have no regulatory lag and the recovery mechanism has already been determined and requires no additional rate activity. Also in early January, we closed on the transaction to purchase an additional 15% ownership interest in the SouthStar Energy Services joint venture. We paid $57.5 million for the additional interest and will now own 85% of the business and will receive 85% of the annual earnings.

Turning to our storage projects, we continue to make good progress on building out the first cavern of the Golden Triangle storage facility in Texas. We are expecting to put Cavern One in service during the second half of this year. We are moving forward with the permitting process for the expansion of the Jefferson Island storage facility. We continue to believe that Jefferson Island is a premiere location for rapid cycle, high deliverability storage and we have seen that the interest from our customers is at a high level, and that demonstrates that the service requirements far exceed our available capacity.

Our operating agreement with the state of Louisiana was approved by the general board in December. And that has cleared the way for us to restart the permitting process in order to get the expansion back on track. We anticipate getting the necessary approvals to move forward by year-end, and that will allow us to begin construction early next year. These are the major highlights for the year. We feel very good about our performance in 2009 and very good about our ability to deliver on our 2010 plan.

With that I'll turn it over to Drew for the financial review.

Drew Evans

Thanks, John. Good morning, everybody. I'll cover the major earnings drivers for the year for each business unit, but you can also find very good schedules in our 10-K, that reconcile earnings in each business unit by line item. In our distribution business, we had a solid year, especially given the slight declines in customer accounts year-over-year. 2009 EBIT was $326 million, compared with $329 million in 2008.

Operating margin increased by $18 million year-over-year, and that was driven by four main factors. The first and largest driver was an $8 million increase in the margin from storage carrying costs. We charge marketers in Georgia for natural gas stored on their behalf. If you recall when we store gas in our system on behalf of the marketers in Georgia, we collect carrying charges on that inventory. And since inventory levels and costs have been higher this year, our margins from that activity are higher than last year. We also have incurred higher cost per carrying it on their behalf.

Other factors driving high operating margins were pipeline replacement revenues, which were up $6 million relative to last year as result of increased investments. Revenue from the Hampton Roads and Magnolia pipeline projects which contributed $2 million above the prior year's results. And reduction in earnings volatility granted in Virginia as part of rate making there this year.

Operating expenses for the utilities were up $26 million year-over-year, relative to the prior year the major factors were an increase of $12 million for pension expense, higher payroll and incentive compensation costs of $12 million and higher depreciation expense of $6 million. These expenses were offset partially by $5 million in lower costs attributed to fleet fuel costs, marketing expenses, and bad debt expense.

Turning to the retail segment SouthStar's 2009 EBIT results were a $105 million. That's $28 million higher than in 2008. Keep in mind that the 2008 results included $24 million in lower of cost or inventory evaluation adjustments, as compared to only $6 million in 2009. So, an $18 million improvement year-over-year. If you exclude these adjustments, the underlying business performed about $10 million better than last year.

SouthStar's strong results were largely driven by improvements in retail margins in Georgia and higher contributions from the Ohio market. The results also reflect significantly colder weather during the fourth quarter, particularly in December. Weather in the fourth quarter was 8% colder than in 2008 and13% colder than the 10-year average.

Operating expenses at SouthStar were up $3 million year-over-year, primarily due to higher marketing and incentive compensation costs. SouthStar continues to experience aggressive competition for customers in the Georgia market and we expect that trend to continue in the foreseeable future. We have seen some positive signs the vast decline in market share in recent months are starting to turn around, and the number of customers moving to the lower margin fixed price plans has started to stabilize as well. In addition to stepping up its marketing efforts in Georgia, SouthStar will also continue to focus on growing its presence in the Ohio market through participation in the unbundled auction process there.

Now turning to the wholesale segment, we reported EBIT of $47 million, down $13 million relative to last year. An $11 million decline in operating margin reflects lower commercial activity realized during the year. The real story however for wholesale in 2009, is that we created significant economic value in both the storage and transportation segments of our business, but the transportation value was realized during the year while the majority of our storage value will be realized in 2010. We did not see significant hedge gains or loss on storage in 2009, so year-over-year our storage gains declined by $36 million as we saw significant hedge movement in 2008.

Offsetting that, was a $36 million year-over-year increase in realized gains as a result of our ability to capture profits on transportation positions in 2009, relative to last year as we saw basis spreads narrow significantly during the year.

If you look at the storage inventory outlook section of the 10-K that's on page 8, we show an inventory withdrawal schedule for Sequent, so you can see the significant storage value Sequent was able to create during the year. That schedule shows that we entered 2010 with $30 million of expected operating revenues from our storage positions that we expect to realize primarily in the first quarter of this year, assuming no major changes in the cycling of our inventory as the market conditions change. As you may recall, Sequent started 2009 with virtually no storage inventory roll out from 2008, and our historical average is closer to about $12 million.

Operating expenses for the wholesale segment increased $2 million, mainly as a result of higher incentive cost in that segment. In the energy investment segment, we record EBIT of $12 million, that's down $7 million from last year. The decline is primarily related to lower interruptible revenues at Jefferson Island and higher business development expense for Golden Triangle and other future projects. Also, revenue for AGL networks was lower as a result of a network expansion project we completed and sold to a customer in 2008. We had a similar project, but smaller project in 2009.

As John mentioned, one of the other major drivers of improved earnings results year-over-year with significantly lower interest expense, interest expense for 2009 was $101 million which was down $14 million relative to the prior year. The year over year changes largely is a function of lower short-term rates we have seen in the commercial paper markets in 2009 relative to 2008.

Finally, the Board of Directors voted to increase dividends by a penny per quarter which increases our dividend to $0.44 per quarter. This is the 249th consecutive quarterly dividends since 1948.

Those are the highlights, so let's go to your questions.

Question-and Answer Session

Operator

Your first question comes from the line of Barry Klein with Citi. Please proceed.

Barry Klein - Citi

Question on the guidance for 2010. With regards to the utility you had some higher sharing revenues in 2009 versus 2008 and 2007. These levels expected to be at these elevated levels going forward, or are you expecting more of a reversion back to the 2008, 2007 levels?

Drew Evans

Barry, could you give us a little bit more detail on the revenues that you are speaking about?

Barry Klein - Citi

Isn't there on page 8, I think you discussed it in the comments about asset management transactions that are profit sharing, page 8 of the 10-K.

Drew Evans

I think the simplest way to answer is it's a function of how much margin is created Sequent around the management of the utility assets. The agreements won't change materially in 2010. And so to the extent that Sequent is able to make more money around particularly storage and transportation assets than the sharing amount with the utilities will increase. But these aren't the functionals of significantly higher bailment payments year-over-year.

Doug Schantz

Obviously we do have some minimums on the contracts, but given where we see storage spreads, storage spreads for that business have been very attractive. Transport times can be stressed but I don't see any major fundamental changes, on a whole if you look at the value that's been created.

Barry Klein - Citi

And with regard to Sequent and also that schedule on page 8 that I think Drew was talking about with the withdrawal schedule and the expected operating revenues, are those revenues locked in? Is it dollar amount of those revenue locked in and it's just the question of timing, or could those revenues potentially fluctuate?

Doug Schantz

Those are locked in. They are hedged. Most of the volumes there have to be withdrawn by the end of the withdrawal period so since its reservoir storage. So, I would say the majority of that's locked into first quarter withdrawals.

Barry Klein - Citi

And was there any increase in pension, pension expenses expected for 2010?

Drew Evans

Yeah, because of the way averaging works around pension it covers a three to five year period depending on who the master is and we'll have one of the good years roll off and we'll move into another year of measuring the asset against its performance in 2008, so we'll see about a $3 million increase year-over-year in pension expense.

Operator

Your next question comes from the line of Carl Kirst of BMO Capital. Please proceed.

Carl Kirst - BMO Capital

John, you mentioned the fact that you expect SouthStar to kind of go back to more normalized level, and we kind of have a little bit of the erosion from moving to the flat pricing plans. And one I just wanted to if we could kind of dead reckon again what you think the normalized earnings power of SouthStar is sort of post this migration to the flat pricing system. And Drew, you've mentioned that there seems to be now a stabilization of retail customers moving to that plan. Is there anyway to quantify what the percentage of customers that currently have that fixed price versus variable plans, so we can sort of track that?

John Somerhalder

Carl, let me take the first part of the question. If you look at how SouthStar performed for the year compared to the original guidance range we put forward. And you look at the extra income that they generated primarily in the 4th quarter because of cold weather, it was a big part of that extra $0.10 gap that we had at the end of the year. So either one of those measures are more normalized set of earnings at normal weather conditions with the customer mix and the customer account we have now, it is in the range of close to $10 million lower than how we performed for 2009. So that sets the base expectation. And then I will let Mike Braswell or Drew talk about the customer mix.

Drew Evans

Sure. If you are looking at the percent of fix price customer that has been around the low 20% range. And again we expect that to stabilize in 2010. We can certainly provide that percentage on an going basis, Tom. It hasn't changed materially from the beginning of 2009 to about where we are today. Again it has been in the low 20% range. It really jumped up in 2008.

Carl Kirst - BMO Capital Markets

That's very helpful. And then if I could just shift to Sequent as we look forward to what is baked into 2010 guidance, is there anyway to, and lord knows with market conditions these buckets will shift around, but just as you look at it today we have got $30 million coming in from storage. How are you viewing the composition or the strength perhaps from the transport as well as commercial activity? Commercial activity really took a hit in 2009. Do you see that coming back at all, or are we going to be in sort of a sustained low-level for the foreseeable future?

Drew Evans

This is Drew. What I say about commercial activity it's the way we capture it excludes what was generated on transportation this year, and so we locked ourselves into its calculation a little bit and so I'm not sure if it is quite a strong an indicator as it has been in the past. One of the things that we are looking at for guidance for 2010 and we will go through each of the different components when we have our analyst meeting, I guess its the month after next, its that we really don't want to have a great deal of reliance on trading as a large component of our total earnings generated. And so it is going to look a bit more normalized even though we have a strong roll out schedule coming in.

But I think what we are trying to stick to is a base plan where Sequent's core earnings grow a modest amount year-over-year but certainly don't anticipate 2010 having a significantly larger percentage of our total earnings coming out of the business.

Doug Schantz

Carl, this is Doug. Obviously you hit on the nail about the buckets. Buckets will move around. Transportation has been stressed recently but storage has been very attractive to us. Our deal count is up. It will be up 2010 over 2009 we have a lot of good transactions being added to the mix. And a key part of what happened last year in terms of commercial activity was kind of the mild summer we had with no storms in the Gulf. So that was a major piece of that. It gets into weather and it gets into the different buckets, what's going to be attractive or not. But clearly, we are well optimistic about 2010.

Carl Kirst - BMO Capital Markets

Great, and then last question if I could just with respect to the incremental $45 million that was in effect lumped into the STRIDE program. The STRIDE tariff if I recall correctly went out into something like the 2020 time frame? This has just basically extended that out?

Drew Evans

That's right, Carl. It is 2022 and it extended into 2025.

Carl Kirst - BMO Capital Markets

Okay. But the $45 million is going to be spent this year or is that also spread out over the three years like the 176?

Drew Evans

That's over the three-year period.

Operator

Your next question comes from the line of Ryan Rosenthal that with Sidoti & Company. Please proceed.

Ryan Rosenthal - Sidoti & Company

Question concerning SouthStar. I think John mentioned earlier that he guided about $10 million lower for EBIT out for next year relative to this year. Is that exclusive of the benefit for the 15% additional purchase of your joint venture?

John Somerhalder

Yeah, what I was talking about there and that's a very good point. What we were talking about is overall earnings at SouthStar. And so if you just look at the change on SouthStar returning to normal weather, it was in that range year-over-year. However, with the purchase of the 15% interest then if you look at our interest in this it is very similar year-over-year because of that change.

Ryan Rosenthal - Sidoti & Company

Great. And then just one question concerning your storage cavern investments, can you give us an update as far as where you are on scheduling or you're planning on I want to be adding those new caverns over the next several years? I guess following some of the regulatory announcements overt his last quarter?

John Somerhalder

Yeah, the general schedule is very much in line with what it has been over the last year. Things are going very well at Golden Triangle. And we do anticipate based upon the schedule we see today that we will be in the process early in the second half of this year starting to put Cavern 1 in service. As soon as we start that process we move to leaching out Cavern 2 there and what that allows us to do is head towards a schedule of putting Cavern 2 in service early in 2012. So that’s very much in line with what we talked about earlier.

With Jefferson Island, as you have heard, we are now back on track to move the permitting process forward. We expect that, that will take the majority of this year to move through , and that would allow us to start drilling the Cavern 3 and starting to leach it out early in that year which basically would be an 18-month process or so after that to get that cavern in service. So that's roughly the schedule for the next three caverns that we put in service.

Ryan Rosenthal - Sidoti & Company

Great, thanks for your time. thanks.

Operator

Your next question comes from the line of Ted Durbin with Goldman Sachs, please proceed.

Ted Durbin - Goldman Sachs

I guess maybe just a little more macro on storage. How are you seeing the market in the Gulf Coast shaping up in terms of the supply demand fundamentals around storage?

John Somerhalder

Yeah, Ted. We look at that in a number of ways. We obviously have several data points. We talk to outside consultants and they do a longer term analysis of that. We are in the process of recontracting, as an example, on a regular basis Jefferson Island. So we have those data points and obviously Sequent is in the market for storage on a regular basis. And we have those data points as well. And what we have seen recently for storage located at the right place like Jefferson Island, we have seen a return to a positive trend. As you all know coming off the volatility we saw with Katrina and Rita, we saw the strongest market value for high deliverability storage. That came off in a year and a half ago; a year ago we saw lower points. We have now seen that strengthen to some extent. Very much in line with the pro-forma economics we put forward for our storage project. So at least what we are seeing today is a strengthening of storage spreads. But I wouldn't say they are going back to the levels we saw coming out of Katrina and Rita. But we did not anticipate that. But certainly a strengthening. So that's what we are seeing in the market.

And the long-term fundamentals we believe with announcements like we saw from Progress Energy converting I think it was 14 plants. They were smaller coal plants, but converting to natural gas. And a number of natural gas plants that have been installed that are running the low load factors that we think for environmental and other reasons we'll start to see higher load factors. We still feel very good about the strength of the natural gas market and that does drive the need for high deliverable storage to serve those.

And then obviously, one of the things will monitor is LNG and how that comes into the country. That can drive value for storage as well. That one we are still a little more in a wait and see mode. We will learn a lot this year as certain terminals come on-line and we will see how that plays out. Our belief though still is the fundamental value of high deliverability storage in the Gulf Coast is very strong.

Ted Durbin - Goldman Sachs

Okay. I guess in terms of Golden Triangle, I would assume you will probably see better rates down at Jefferson Island than would at Golden Triangle? What are you thinking of the difference between those two?

John Somerhalder

Jefferson Island is really a premier location given the liquidity around the Henry hub and how it is connected. Yes, we have always anticipated and in everything we've looked at we expect stronger rates. However, Golden Triangle has some advantages as well. It is in a corridor where we believe LNG will come in intermittently. And when that comes in it needs to find a home temporarily before the market given those cargos coming in. It uniquely is connected to pipelines to serve Florida so that has some advantages. So yes, we see Jefferson Island as a premium facility, but we do see value in Golden Triangle as well, but clearly a lower level. And that's what we anticipated when we put together the economics on that project.

Ted Durbin - Goldman Sachs

And then shifting back over to the Elizabethtown. I think you'd asked for decoupling originally. Did that not come out in the settlement or where did you end up on that?

John Somerhalder

I will let Hank Linginfelter go into that.

Hank Linginfelter

Thanks, John and thanks, Ted for the question. It did come out as a phase 2 of the rate proceeding. And the BPU has authorized us the opportunity to file a plan that we think will look a lot like the plans they have already approved in New Jersey. And the schedule for that is sometime for the first half of the year. I think we will have it filed and it will take a while for them to work through the proceeding, but we are moving forward with that.

Ted Durbin - Goldman Sachs

Great. And if I could just one more on terms of the Atlanta Gas Light rate case, I think you previously said you would be looking for a single digit rate increase. Is that still what you are thinking, or where are you thinking on that?

Hank Linginfelter

We hope it will be higher. When you say single digit I don't know if you mean single digit percentage or?

Ted Durbin - Goldman Sachs

Yeah, percentage, rate increase.

Hank Linginfelter

It may be single digit percentage on base rates or on total bill, but we are looking for pretty aggressive increase there just because it has been a long time since Atlanta Gas Lights has had one and we have a good case for an increase in Georgia.

Ted Durbin - Goldman Sachs

Just remind us, is it a historical test here or do you get any sort of forward look on that?

Hank Linginfelter]

We do some forward looking and we update it as the case goes on for certain factors, but it is more forward looking than most of our jurisdictions.

Operator

(Operator Instructions) Your next question comes from the line of Craig Shere with Tuohy Brothers investments. Please proceed.

Craig Shere - Tuohy Brothers

Tuohy Brothers. It has been a little bit for me, so I apologize if I have got simple questions. But just curious on your view if you see unregulated storage as a possible fit for MLP status. Would that be a consideration in the future?

Drew Evans

This is Drew. No question. I think you have to certainly get the critical mass on mid-stream assets before going through the (inaudible) of creating an MLP mix makes financial sense. We really need additional revenues out of Golden Triangle both phase 1 and phase 2 before something like that becomes immediately practical. I think there are certain combinations we could make in the near term that would allow us to access that market. We do that analysis almost continually.

John Somerhalder

And I think clearly Cavern 1 in service puts us much closer to that point that Drew is talking about. And Cavern 2 clearly puts us in range for that being a possibility.

Craig Shere - Tuohy Brothers

Great. And the second question, years ago the focus or the mantra was, we are the efficient guys. We're going to keep rates flat, but look for profit sharing to maximize the use of otherwise under utilized or inefficiently deployed utility assets with your management trading arm. And I'm wondering if that's, given the increase in costs over time and pension expense and everything else, if that's still a focus for you to focus on sharing profits and future rate cases off the assets of the utilities, or if you are more into total rate recovery on increasing costs, and where you think the mindset of all of the jurisdictions are in terms of being willing to share these synergies on the utility assets.

John Somerhalder

Let me start and then I will let Hank finish the information. But clearly our focus has been and will continue to be a very efficient preferred operator of utility assets. And that is what has helped us very much over the last five years as we have had these longer term rate stay outs. And if you look at our metrics related to cost per customer and some of those things, we continue to benchmark very well. As you recognize, things like pension costs have gone up. The good news is we were at a logical point close to the end of a lot of the rate case freezes or agreements to stay out. So it was prudent for us, in fact, it was required in most jurisdictions to go back. It was very good timing for us to true up those costs. Our focus still will be, moving forward, though to minimize the cost on our customers and to help our shareholders to keep costs under control. So it will still be a strong focus. The fact that we went back in and trued up rates was really more a requirement of the last rate stay out. And it was very good timing for us as well. But we are still in that mode of controlling our costs and plan to continue to do that and Hank can add a little more detail.

Hank Linginfelter

Sure, I would add, Craig, that on the sharing components, I think all of the jurisdictions, we have a contract with Sequent in every jurisdiction for asset management have grown to appreciate Sequent's transparency and ability to share, all the details on how they do business.

And now I would say our regulators across every jurisdiction favor the affiliate relationship just philosophically. They appreciate how Sequent manages those assets and can disclose all the details around them. And I think we will continue to see that as favorable. We may face some bidding in some jurisdictions, but also some have said we would rather just extend if there is no other business to do. And we will probably have something like that, that will come with the phase 2 of the Elizabethtown rate case for Sequent.

And then I think John's points about cost-efficiency just will continue to manage very carefully. You might recall over the last several years we have been integrating acquisitions and we get synergies from those as well and customers and various jurisdictions benefit from those synergies because we spread our costs over a bigger footprint and to the extent we will find those we will continue to do it. But we know we will be in more rate cases in the near term than we've been in the last five years.

Craig Shere - Tuohy Brothers

So you don't see any of the expense relief you were just talking about resulting in any push back on the profit-sharing side?

Hank Linginfelter

No, I don't think so.

Operator

There are no further questions in the queue.

Steve Cave

Okay. Well thank you very much for joining us today. Obviously give us a call with any follow-up questions you may have. Have a good day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.

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