Great Plains Energy Incorporated Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.27.14 | About: Great Plains (GXP)

Great Plains Energy Incorporated (NYSE:GXP)

Q4 2013 Earnings Call

February 27, 2014 9:00 am ET

Executives

Kevin E. Bryant - Vice President of Investor Relations & Strategic Planning and Treasurer

Terry D. Bassham - Chairman of the Board, Chief Executive Officer and President

James C. Shay - Chief Financial Officer and Senior Vice President of Finance & Strategic Development

Analysts

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Michael Goldenberg - Luminus Management, LLC

Sarah Akers - Wells Fargo Securities, LLC, Research Division

Paul Patterson - Glenrock Associates LLC

David A. Paz - Wolfe Research, LLC

Operator

Good day, ladies and gentlemen, and welcome to the Great Plains Energy Fourth Quarter Year-end 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Kevin Bryant, Vice President of Investor Relations and Strategic Planning and Treasurer. Sir, you may begin.

Kevin E. Bryant

Thanks, Sam, and good morning, everyone. And thank you for joining us for our year-end 2013 earnings conference call. Let me begin by introducing the members of the Great Plains Energy management team, who are here with me today. We have Terry Bassham, Chairman and Chief Executive Officer; and Jim Shay, Senior Vice President and Chief Financial Officer, who, in a few moments, will both provide an overview of our 2013 results, our 2014 earnings per share guidance range and our longer-term planning targets.

Scott Heidtbrink, Executive Vice President and Chief Operating Officer of KCP&L, is also with us this morning and will be available during the question and answer portion of today's call.

Before we begin, I must remind you of the inherent uncertainties in any forward-looking statements in our discussion this morning. Slide 2 and the disclosure on our SEC filings contains a list of some of the factors that could cause future results to differ materially from our expectations.

I also want to remind everyone that we issued our earnings release and 2013 10-K after the market closed yesterday. These items are available, along with today's webcast slides and supplemental financial information regarding the quarter and full year 2013, on the main page of our website.

With that, I'll now hand the call to Terry.

Terry D. Bassham

Thanks, Kevin, and good morning, everybody. 2013 was an outstanding year for our company. We increased earnings per share 20% to $1.62, and increased our dividend nearly 6%, contributing to a total shareholder return of 24%.

Through a balanced approach, we were able to achieve Tier 1 reliability for our customers, along with Tier 1 performance for our shareholders. These achievements were the result of hard work and the outstanding efforts of our employees across the company, who I would like to publicly thank on this call.

We plan to build on this success and are providing an earnings guidance range of $1.60 to $1.75 per share for 2014. Jim will discuss the details of our 2014 guidance, along with our 2015 and 2016 considerations, later in the call.

Turning to Slide 5. I'll discuss positive drivers in our service territory, our ongoing strategies to reduce regulatory lag, our approach to sustainability, along with an update on the national transmission strategy. We believe our service territory is healthy and that it has a positive growth outlook.

For 2013, our weather-normalized demand was up 1.4%, which is the strongest we've seen in 5 years. We're encouraged by positive trends in both the labor and housing markets. Regional unemployment is near prerecession levels, at 5.4% in December, reflecting the strength of employers in our service territory. We've also seen a solid recovery in the housing market with single and multi-family permits, up 24% and 62%, respectively, compared to 2012.

Kansas City area is a great place to do business, and many companies in our service territory are expanding. I'd like to cite just a few prominent examples. But first, the sport motor company, whose $1.1 billion investment in its Kansas City assembly plant, will add approximately 2,000 jobs, with production of the transit van expected to begin this quarter.

The second example is BNSF Railway, which has completed a state-of-the-art intermodal facility, adjacent to a 1,000-acre logistics park with a distribution warehousing development capacity of 15 million square feet. Development has long-term potential to create nearly 13,000 jobs.

The third example is Cerner Corporation, a leading healthcare software company based in our region, who recently announced plans to build a 4.5 million square foot campus, which would employ an additional 15,000 people by 2024.

We've been active on the regulatory and legislative fronts, as our strategy includes minimizing regulatory lag, smoothing out the impact of customer rate increases. We expect the Commission of Missouri issue an order on our request to implement an Accounting Authority Order, or AAO, for transmission cost this spring.

On the legislative front, we are seeking relief through Missouri Senate Bill 702, which will defer for future recovery in general rate case proceedings transmission and property tax expenses that exceed amounts recovered in current rates. The Missouri Senate Bill 909 seeks to reduce regulatory lag by deferring depreciation and cost of capital associated with infrastructure investments for future recovery and general rate case proceedings. We believe that the AAO and legislative efforts are in the best long-term interest of customers and shareholders. We'll keep you updated as things continue to develop.

Appropriate investments in sustainability initiatives is an integral part of our long-term strategy. To that end, we're pleased to have filed a request to expand our energy efficiency programs as authorized under the Missouri Energy Efficiency Investment Act or MEEIA. Specifically in December, we requested to expand and offer energy efficiency programs to our KCP&L customers in Missouri, similar to the programs that GMO offers its customers. These programs provide realtime recovery of program cost and a portion of net shared benefits, along with an opportunity for longer-term performance incentives.

Also in the area of sustainability, we were able to take advantage of competitive pricing and earlier this year, announced plans to purchase 400 megawatts of additional wind power. With this addition, our total renewable portfolio will be nearly 1,000 megawatts, and we are well-positioned to satisfy our renewable requirements in Kansas and Missouri through 2023 and 2035, respectively.

Regarding our long-term national transmission strategy, Transource, our joint venture with AEP, continues to make progress. This includes the recent innovation of our 2 SPP projects for the new company. Near term, Transource is focused on submitting bids to construct transmission projects in several domestic RTOs, including PJM, MISO and SPP. We believe Transource is one of the best-positioned companies in the country to compete in the growing transmission market. We'll keep you apprised as things develop with Transource as well.

I'll now turn it over to Jim to discuss our 2013 full year performance, guidance for 2014 and considerations for 2015 and 2016.

James C. Shay

Thank you, Terry, and good morning, everyone. I'll begin with Slide 7, which provides comparison of 2013 to 2012. For the full year, our earnings per share increased $0.27, from $1.35 in 2012 to $1.62 in 2013. The increase was primarily driven by new retail rates; an increase in weather-normalized demand, which I'll discuss in a moment; and lower interest expense. These favorable impacts were offset by weather, higher transmission costs and property taxes.

For the fourth quarter, our earnings per share increased $0.08, from $0.03 in 2012 to $0.11 in 2013. New retail rates, higher customer demand and the impacts of weather were key drivers for the quarter.

Included on the appendix of this presentation are details on customer consumption. As Terry mentioned, there are a number of positive drivers on our service territory, which resulted in 1.4% weather-normalized growth for the year.

For the fourth quarter, we saw growth of nearly 3%, which continued the positive trend. Of particular note, I'd like to highlight that we've seen 4 consecutive quarters of positive residential growth.

Regarding O&M expense, we are pleased with our performance in this area. Approximately $22 million of the $24 million O&M increase in 2013 was due to regulatory amortizations, pension trackers and energy efficiency expenses that we are recovering in our new retail rates. Levers we were able to pull in 2013 to control O&M and other cost increases include managing headcount down 4% through attrition, the renegotiation of coal transportation contracts and lower procurement cost through supply chain transformation activities.

Turning to Slide 8. As Terry indicated, our 2014 earnings per share guidance range is $1.60 to $1.75. A few drivers and assumptions for 2014 include, first, weather-normalized load growth of 0.5% to 1%; one additional month of new Missouri retail rates. You recall that $115 million of rates in Missouri became effective on January 26, 2013.

In August, we expect new retail rates to be effective in Kansas, following the abbreviated rate case for the La Cygne environmental upgrade, where we are requesting a revenue increase of $12.1 million, an increase in allowance for funds used during construction from the La Cygne project; higher transmission costs from property taxes and Missouri, a portion of which may be deferred for future recovery depending on the timing and outcome of legislative and regulatory activities Terry discussed; and finally, an increase in depreciation and amortization expense relating to ongoing infrastructure investments placed on service.

As the slide shows, we expect O&M to increase approximately 3% to 4% over 2013. Roughly 60% of the projected increase relates to incremental MEEIA cost that have a direct revenue offset and cost associated with the Wolf Creek mid-cycle maintenance outage. Cost during mid-cycle maintenance outages are expensed as incurred as opposed to costs during the refueling outage that are deferred and amortized between refueling outages.

Our O&M forecast for 2014 includes approximately $9 million for the Wolf Creek mid-cycle outage and $26 million for incremental regulatory amortizations, pension trackers and MEEIA expenses that were approved in our most recent general rate cases.

Diligently O&M cost has been a clear company priority, as demonstrated by our performance. When compared to 2011, our 2014 O&M forecast is relatively flat, other than the $35 million of O&M just discussed.

On Slide 9, we have listed considerations for 2015 and 2016. From an earnings trajectory standpoint, we expect the improvement from 2015 to 2016 to exceed the improvement from 2014 to 2015. This trend is consistent with what we've previously seen during rate case cycles. Although difficult to predict, we are assuming weather-normalized sales growth of 0.5% to 1% during this period. We will continue to manage cost tightly and plan to manage O&M growth in line with our view of demand growth.

For 2015, we expect to pick up an additional 7 months of new retail rates in Kansas from the La Cygne abbreviated case. We plan to request construction accounting treatment for La Cygne. If approved, incremental costs related to the La Cygne upgrade, such as O&M and depreciation, would be deferred once the asset goes into service in the second quarter of 2015 until the effective date of new retail rates.

Previously, we were granted authorization of construction accounting treatment in Missouri for an environmental upgrade at Iatan 1 and the construction of Iatan 2.

We plan to file general rate cases in 2015 to reflect the completion of the La Cygne environmental upgrade project and to include our request for a fuel adjustment clause for KCP&L in Missouri. We anticipate new retail rates will be effective in the first quarter of 2016.

Our financial position remain strong, which is evidenced by Moody's recent upgrade to our credit ratings. Our financing needs are also pretty straightforward. We will likely term out some short-term KCP&L debt during 2015, and we have no plans to issue equity through 2016.

I'll now turn it back over to Terry, who will discuss a few of our longer-term strategies and targets.

Terry D. Bassham

Thanks, Jim. Turning to Slide 10, I'd like to discuss our near and longer term earnings and dividend growth targets. Our strategy is to deliver safe and reliable power at a reasonable cost to customers and competitive returns to our shareholders.

With appropriate investments and diligent cost management, our target is to maintain a high level of system performance, while managing a long-term increase in average customer builds. At the same time, we expect to deliver competitive returns to shareholders through a combination of earnings and dividend growth.

In the near term, through 2016, we are targeting 4% to 6% earnings growth off our 2014 earnings per share guidance range. Rate-base growth is a key component of our strategy.

Between 2013 and the start of 2016, we continue to target rate-based growth from 5.7 billion to 6.5 billion, or roughly 4% per year. This rate-based growth is primarily driven by the environmental upgrade at our La Cygne generating station.

Beyond 2016, we have considerable investment opportunities to ensure that we are able to deliver safe and reliable power, while managing customer rate impacts. Detailed in the Appendix of this presentation is our 5-year capital expenditure plan, which includes expenditures to harden our distribution infrastructure and improve protection for physical and cyber security.

In the area of sustainability, we've included capital costs related to compliance with proposed and final regulations under the Clean Air Act and Clean Water Act. We also expect to make investments in national transmission projects through Transource.

The other component of shareholder return is dividend growth. Near-term, through 2016, we are targeting 4% to 6% dividend growth. With our plant investment and rate-base growth post 2016, we expect to generate positive cash flows before dividends. It's also important to note that we do not anticipate paying significant cash income taxes through 2020, due to net operating losses. The combination of these factors gives us considerable flexibility to increase our annual cash dividend.

As a result, our plan is to narrow our payout range 60% to 70%, which allows us to increase dividend growth at accelerated rate, while staying within the top end of this range. To sum up, we are pleased with our 2013 results and are looking forward to 2014 and beyond.

I appreciate your time this morning. Scott, Jim and I would now be happy to answer your questions that you may have for us.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Brian Russo of Ladenburg Thalmann.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Embedded in the 2014 guidance, can you isolate the under recovery of transmission expenses and property taxes on an EPS basis?

James C. Shay

Yes, Brian, for 2013, we had about $0.09 of lag, that being cost in excess of the amounts in our new retail rates going into the year. So $0.09 for 2013, and we would expect those costs to grow next year. Though, perhaps not quite at that rate. So meaningful components of lag that we've been able to -- we were able to offset to a certain extent in 2013. And so that -- hopefully, that sizes up the issue for you.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. So just to confirm it. At least $0.09 of lag related to transmission expense under recovery and property tax under recovery in your '14 guidance?

James C. Shay

Yes.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

And that's probably what, 25 basis points?

James C. Shay

That is.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And is there any reason why you only forecasted earnings growth through '16 rather than a 5-year CAGR like other companies do?

Terry D. Bassham

Well, this is Terry. We've got clear vision through the rate case and a history that kind of reflects that, so we thought it was important to list it that way. Obviously, we still got low growth that we've -- we're watching, which can affect that, and felt like it'd be better to continue to work through the process the next year or so before we gave definitive numbers. Remember that what we're talking about here is the flexibility we have around how we spend that cash or how we spend those dollars and have a lot of opportunities and need from EPA and infrastructure perspectives. But a manner of caution that far out.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And earlier, you mentioned the Transource opportunities in PJM and SPP and MISO. I was wondering whether you could maybe talk a little bit more in detail about that or into the dollar value of market opportunities?

James C. Shay

We haven't really forecasted investment dollars specifically yet. That's not really in this forecast. At this point, those are upside, if you will, because of the ongoing RFP processes. So I guess, what I would say is we're, as Transource, actively involved in the opportunities there and has had several projects we're working on. But at this point, nothing's been awarded. And so to put a dollar impact in '16, '17, '18 for those would be a little bit premature.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And just lastly, to confirm. There is no assumption in your guidance related to the potential accounting order or any of the legislative initiatives that would all be upside to your mid-point?

Terry D. Bassham

To the midpoint, yes. I mean, I'd say that it is included in our guidance and then if we got on of that, it obviously pushes to the lower end. If we got it all, it pushes towards the top end. But there's no specific assumption around recovery within that range, that's correct.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. The mid-point assumes no recovery?

Terry D. Bassham

Effectively. It assumes managing around, not recovering, that's correct.

Operator

Our next question comes from Michael Goldenberg of Luminus Management.

Michael Goldenberg - Luminus Management, LLC

I have a question regarding the earnings trajectory. So '14 to '16, you think 4% to 6%. But then you said '15 to '16 is higher? Is the way to understand it that '14 to '15 will be more like 3% and '15 to '16 7%. Is that the right way to think about it?

Terry D. Bassham

Mike, I hate to do it to you, but you're a little far from the microphone, I guess, I didn't quite get that.

Michael Goldenberg - Luminus Management, LLC

Sorry, is it fair to say that the 4% to 6% has a kink, the way you explain in the presentation. So '14 to '15 may be something like 3% growth and then '15 to '16 something like 7% growth. Is that the right way to understand what you're trying to tell us?

Terry D. Bassham

Yes, absolutely. I mean, obviously, we've got an increase in rates expected through the rate case that won't be collected or seen until the order. And so, yes, it's a -- you described it exactly right.

Michael Goldenberg - Luminus Management, LLC

And then I want to follow up to what Brian was asking. That if we -- the mid-point the guidance assumes no recovery, but ability to mitigate it through other costs. So it assumes less than the full impact, lower end assumes full negative impact and the upper end assumes no impact because you get recovery. Is that the right way to think about it?

Terry D. Bassham

I think so. Let me say it again. I mean, obviously, if we don't achieve any of the recovery mechanisms, we'll have to take action to mitigate. But that's likely to push us in the lower end of the range. If we recovered everything, we would have the opportunity to be on the higher end of the range. Our range includes not just this one item, though, it includes load growth. So we could have higher load growth or lower load growth. So there are several factors that affect that. But the effect of that particular item you've described is accurate.

Operator

Our next question comes from Sarah Akers of Wells Fargo.

Sarah Akers - Wells Fargo Securities, LLC, Research Division

Are you able to break up the -- or I'm sorry, break out the level of non-regulatory costs that are assumed in '14 guidance?

James C. Shay

Yes, it would be in the $0.09 to $0.10 range consistent with 2013.

Sarah Akers - Wells Fargo Securities, LLC, Research Division

Got it. And then it looks like there's still meaningful environmental spend even after La Cygne. Would that qualify under the ISRS legislation as it's currently written? And if not, would the plan just to file traditional rate cases? Or what's the strategy on environmental going forward?

Terry D. Bassham

Those kinds of projects would qualify under the plan as written. There's other limitations within that bill. I mean -- and obviously, the bill's not done yet. But yes, they would be the kind of things that will be included. And we take advantage of any opportunity if the bill passed. If it didn't pass or to the extent they were greater than the limitations that may ultimately be on the bill, we would include those in rate cases as well. Remember, the late MEEIA works, we're likely to be a little more regular in our rate case filings because it requires a 3-year true-up. And that gives us an opportunity to true-up several things at that point.

Operator

[Operator Instructions] Our next question comes from Paul Patterson of Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

Just a sort of follow-up on the legislative initiatives. When would they actually take effect if they were to be -- I mean, when we do expect them in your guidance to actually take effect in 2014?

Terry D. Bassham

The bill itself, a bill normally passed out of the legislation in May-ish would go effective in May -- I mean, go effective in August. So that's when it would be effective. Now what time period it will relate to? It all depends on how the bill is written. But assuming that it related to future expenses, then it would be, say, September, dollars would start being subject to the bill.

Paul Patterson - Glenrock Associates LLC

Okay. So then to focus back on Brian and others people's questions here. When we look at the impact in 2014, it would seem to me that these legislative initiatives, however they might be involved in guidance, if they were to pass, would probably have a bigger impact in 2015. Is that right? The positive side, is that right?

Terry D. Bassham

Yes, it's a very good point, because normal legislation like this are not retroactive. And so the effect in '14 would be less than half the year, and in '15, would be a full year's effect. You're exactly right. And again, remember, Jim gave you kind of the impact of transmission and property taxes both, and we've got an accounting order request to commission for the transmission piece. So again, there is some variability in when and how these mechanisms might be available to us.

Paul Patterson - Glenrock Associates LLC

Okay. And then with regards to the 909, that would be an additional to that $0.09. I forgot, I apologize if I missed this, what would be the impact of that? Could you quantify that?

Terry D. Bassham

Well, in the short term, probably not a lot for '14. Again, 909, as its written, would suggest that as we take on additional infrastructure projects, environmental projects, that we would have the ability to pass those through quicker. Obviously, were not planning on spending any additional dollars until that passes. But I would say, probably start in '15, you could start seeing our ability to do some things that might be above and beyond what we did before. So it would be more of a '15, '16 and beyond process.

Paul Patterson - Glenrock Associates LLC

Okay. And then just finally on sales growth. You guys have this great year of course. You had some not so great years previously on sales growth. It does seem that you guys are being a little bit on the conservative side, perhaps, maybe not, I don't know. With 0.5% to 1%, if you have those rate growth just this year, could you just sort of elaborate a little bit more on in terms of what you're seeing in sales growth and why you see it go down in the next few years as opposed to 2014 as opposed to what you saw in 2013.

Terry D. Bassham

Yes, we talked in 2012 about the fact that we were seeing metrics, in particular, around housing, some around jobs that suggested we had growth in our economy here, but we weren't seeing an electricity sales. That kind of continued to develop in '13. So we saw growth in the housing for the full year, whereas our other segments didn't tend to grow until later in the year. So I think what we're seeing, from a macro perspective, is a very good feeling about our economy, our growth in our local economy, and now growth in our electricity sales as we've come out of the recession like a lot of folks have. A lot of that growth though that pushed us to the 1.4% for the year was in the second half of the year though. Now I would say that's the trend, I hope. So we're seeing the growth. But it has been, other than housing, it's been more recent for the other 2 segments. And so we're not quite ready to declare a complete victory for '14, but we do believe and feel strongly that our growth opportunities were growth utilities from that perspective, I'll put it that way. 0.5% to 1%, I think, is a very cautiously optimistic number. And yes, we're hopeful that maybe we'll do a little better than that. But simply, we've got still some growth to do within our area to get comfortable that it's kind of a permanent trend with energy efficiency and other things also being part of the mix.

Paul Patterson - Glenrock Associates LLC

Right. Is this based -- that 0.5% to 1% is based off a 1% customer growth, is that correct? Or what is the customer growth that we should think about in relation to sales growth?

Terry D. Bassham

From a customer count perspective?

Paul Patterson - Glenrock Associates LLC

Yes, yes. If you don't have that, that's okay. I was just wondering if -- because I think last time, you said you guys were expecting a 1% growth in customers.

Terry D. Bassham

Yes, we can look that up for you. Again, I think we see both customer usage up as well.

Operator

And our next question comes from Brian Russo of Ladenburg Thalmann.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Just wanted to confirm. Previously, you were targeting 50 to 100 basis points of reg lag. Is that kind of the bookends of your 2014 guidance?

Terry D. Bassham

Yes. I mean, I think we're in a similar position this year to last, 50 to 100 is kind of our range, but we're always working to be on the shorter end of that.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Understood. And if you get the accounting order or the Senate bills working to your favor, is kind of the target lag, 50 basis points?

Terry D. Bassham

I absolutely agree. Because that kind of help from the legislature or from the regulatory processes, that certainly gives us the ability to reduce that number more effectively.

Operator

And our next question comes from David Paz of Wolfe Research.

David A. Paz - Wolfe Research, LLC

Just sorry to belabor the transmission cost of, but just wanted to clarify, can you remind me whether transmission cost about those in rates are not picked up by any fuel costs at GMO?

Terry D. Bassham

They are not picked up in GMO or at KCP&L kind of different reasons. They are picked up in Kansas.

David A. Paz - Wolfe Research, LLC

Okay. And I'm sorry, if you said, sorry, but you -- how much do you expect transition costs to rise in '14 versus '13, the dollar base?

James C. Shay

They won't rise quite at the same rate that they did year-over-year. They were up $0.04 from '12 to '13, and they will continue to rise. But those are allocated costs. It's difficult to actually predict the final range, but we will see some incremental increases.

David A. Paz - Wolfe Research, LLC

Great. And then on the construction accounting, I believe you mentioned in the prepared remarks, you did that in the past. You've done that in the past and plan to do that, follow the scheme after it's online. Is that correct?

Terry D. Bassham

Absolutely.

David A. Paz - Wolfe Research, LLC

Can you just describe that how works again, I'm sorry.

Terry D. Bassham

No, that's okay. So we have the unit go in service. The way La Cygne scheduled to work at this point, is one of the units would begin a cutover in late this year, the other early in '15. But it doesn't feel effective, if you will, until it meets all testing, which is mid-summer. We would manage our rate case filing and the timing of true-up around that. But effectively, from the time it goes in service, if you will, until the time rates go effective, we had depreciation expense, which we would then be able to, under a construction accounting order, book as a deferred recovery assets and it would be rolled into the end result of the rate case that you're in at that time.

David A. Paz - Wolfe Research, LLC

Okay. So the difference between the construction accounting and the proposed legislation, I believe, 909, is that you would also get a return? Would you be able to book a return?

Terry D. Bassham

You get a return in both, yes. So if we had the legislation to find out that a return was calculate, it would be pursuant to legislation. If you file something in the commission and the commission a rule with that deferred earnings is. But it would be some manner of recovery of return, as well as the expense.

David A. Paz - Wolfe Research, LLC

Okay. And what's your share of the total La Cygne spend again?

Terry D. Bassham

It's 50%. We share the units 50% with Westar. So depending on the final number, the current project budget is $1.2 billion. So if we came under budget or over -- well, under budget, we will not come over budget. If we came under budget, it would be less. That would put it at $600 million for us.

David A. Paz - Wolfe Research, LLC

Okay. And, I'm sorry, last question. The $6.5 billion rate case, which I believe is on Slide 9. That -- I know it's under your 2016. But based on historic test years, as you have in both jurisdictions, is that kind of like a year-end 2015 rate base?

James C. Shay

It'd be a midyear true-ups for '15. Remember those case we'd have to true-up on our rate base, to get included in the case itself. So it'll be related to the time period connecting to La Cygne in service.

David A. Paz - Wolfe Research, LLC

Okay. Which is mid '15 currently projected?

Terry D. Bassham

Right.

James C. Shay

Correct.

Operator

And at this time, I'm not showing any further questions. So I'd like to turn the call back to management for any closing comments.

Kevin E. Bryant

Well, thank you, everybody, for joining us. And again, our management team and employees are excited about our opportunities to further strengthen our company in 2014 and beyond. So if you have any additional questions, feel free to call our team, and appreciate you joining the call this morning. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a wonderful day.

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