ITC Holdings CEO Discusses Q2 2011 Results - Earnings Call Transcript

Executives

Gretchen Holloway – Investor Relations

Joseph L. Welch – Chairman, President and Chief Executive Officer

Cameron M. Bready – Executive Vice President, Treasurer and Chief Financial Officer

Analysts

Daniel Eggers – Credit Suisse

Jonathan Arnold – Deutsche Bank Securities

Jay Dobson – Wunderlich Securities, Inc.

Greg Reiss – Catapult

ITC Holdings Corp. (ITC) Q2 2011 Earnings Call July 28, 2011 11:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the ITC Holdings Corp. Second Quarter Conference Call and webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) And as a reminder, this conference is being recorded.

I would now like to introduce Ms. Gretchen Holloway. You may begin.

Gretchen Holloway

Good morning, everyone and thank you for joining us for ITC's 2011 second quarter earnings conference call. Joining me on today's call are Joseph Welch, Chairman, President and CEO of ITC; and Cameron Bready, our Executive Vice President, Treasurer and CFO.

Last night, we issued a press release summarizing our results for the second quarter and for the six months ended June 30, 2011. We expect to file our Form 10-Q with the Securities and Exchange Commission today.

Before I begin, I would like to remind everyone of the cautionary language contained in the Safe Harbor statement, which can also be referenced on slide two for those of you participating on the webcast.

Certain statements made during today's call that are not historical facts, such as those regarding our future plans, objectives, and expected performance are considered forward-looking statements under Federal Securities Laws.

While we believe these statements are reasonable, they are subject to various risks and uncertainties and actual results may differ materially from our projections and expectations. These risks and uncertainties are described in our reports filed with the SEC such as our periodic reports on Forms 10-Q and 10-K and our other SEC filings. You should consider these risk factors when evaluating our forward-looking statements.

Our forward-looking statements represent our outlook only as of today, and we disclaim any obligation to update to update these statements except as maybe required by law.

At this time, I’d like to turn the call over to Joe Welch.

Joseph L. Welch

Thanks, Gretchen and good morning, everyone. As we reflect on our results for the first half of 2011, we are obviously very pleased with our strong operational and financial performance. We have made very good progress on our 2011 operating plans during the first half of the year and are very much on track to meet our goals and objectives for the full year. While these results help to substantiate our consistent ability to successfully deliver on our commitment, I think they are especially important in 2011 as we begin to significantly expand our capital program and execute on our five year plan.

The core component of our strategy in five year plan is achieving and maintaining best-in-class operations for all of our operating subsidiaries. Similar to prior years, ITC once again participated in the 2011 SGS benchmarking study in order to provide tangible data to evaluate our effectiveness in achieving our operational goals.

I’m pleased to report that both ITC Transmission and METC rank within the top docile in the study with respect to sustained outages continuing to validate the performance improvements that have resulted from our capital investment and maintenance plans.

In addition, these improvements served as critical factors in delivering reliable service during the recent heat wave we experienced both within Michigan and the Midwest region.

During the week of July 18 when we experienced either all time peak or near all time peak loads, our system operated with a normal thermal and voltage limits and had 100% availability over the peak hours and consequently, we experienced no issues or disruptions to any customers.

While these peak loads are important in demonstrating the operational strength of our system and the benefits of our investments, they are also suggesting more promising outlook for the state of Michigan and the underlying recovery of the market.

For ITC Midwest, which ranked within the four quartile based on the sustained outages in the most recent survey, the results continue to highlight some of the challenges associated with this system. Many of the challenges we face with this system reflect operational difficulties inherent in managing a geographically disperse system with aged infrastructure located in an area of the country that often experiences extreme weather conditions. A prime example of the magnitude of these challenges was the recent storm damage experienced on the ITC Midwest system.

On July 11, severe storms moved across were bringing the winds at more than 100 miles per hour and causing significant damages to ITC Midwest system. The strong damage resulted in over 30 transmission lines taken out of service. The loss of service to over 60 substations, and the need to replace approximately 300 down structures.

While the damage certainly tested the ITC Midwest system, we were able to mobilize quickly and make necessary repairs. More than 200 contractors were immediately deployed to begin restoring priority lines in substations and significant coordination efforts were undertaken to insure that all available personal were efficiently working on repair efforts.

I’m very proud to report that within 72 hours, ITC Midwest restored transmission service to all customer substations that could take service pending repairs for their distribution systems. Once these repairs are made (inaudible) to restoring backup for each to the substations, which are critical in serving and returning load.

Ongoing clean up and repair will continue in the weeks ahead to return the system to ITC standards of reliability. Our timely and effective storm restoration efforts once again serve as a very important indicator of the value that ITC Midwest brings to the area and its customers.

This event coupled with others as the flood of 2008, continue to provide real time evidence around the difficulties in upgrading this system. We are now a little over three years into our ownership of the ITC Midwest system and although substantial improvements have been made, it is clear that we still have much to do achieve our performance targets for this system.

While we remain focused on our operational and fiscal performance, ITC has also continued in its leadership roll in shaping the policies reforms that we view is critical to addressing certain of the key impediments to advancing transmission expansion in the United States.

As we have moved been noting for some time now, the landscape for transmission investment in the US and particular for more regional transmission, infrastructure expansion remains very supportive and continues to evolve positively.

On July 21, we witnessed a pivotal development in the progression when FERC issued Order 1000, its final rule on key transmission policy reforms. Given the length and complexity of the order, we are still in the process of reviewing and assessing all the various details.

However there are certain broad policy objectives outlined in the order that I would like to highlight today, which generally address three fundamental elements in the progress of advancing transmission, planning, cost allocation and federal rights of first refusal or [over].

With regards to transmission planning, Order 1000 is largely a continuation of FERCs primary objectives under Order 890, which include developing a robust regional transmission planning process to meet open access requirements.

There are two principal enhancements, which we see resulting from the order. The first enhancement is the establishment of a frame work for planning interregional projects that are not easily accommodated under the current region by region planning process.

Second, the FERC broadens the criteria for establishing need for transmission investment by requiring regional planning process to consider state and federal policy mandate such as renewal portfolio standards in the regional planning process. Under the order, regions must now engage in stake holder processes to determine how policy mandates will be incorporated into their existing transmission planning process. Much like MISO has started to do in its Multi-Value Projects or MVP planning process.

This is a fundamental change to current planning processes that traditionally recognizes only three types of projects for planning purposes, which are reliability, economic and generation inter connection projects.

Once implemented, we expect these enhancements to close gaps in existing regional and interregional planning processes there by facilitating the identification and development of needed transmission system improvements, addressing the public policy drivers going forward.

FERC’s order also addresses transmission cost, allocation principals, which have long served the significant impediments to regional transmission development. While not prescribing any single cost allocation methodology, Order 1000 provides much needed guidance to all regions as to what constitutes a reasonable cost allocation approach.

Within the order, the FERC reaffirms its support for policies that reflect a cost (inaudible) philosophy mainly those who benefit from the system enhancement should also pay for a fair share of the cost associated with these facilities.

Further, the order rejects the notion that the broad and very benefits provided by regional transmission can be discreetly measured and instead allows regions to continue the long held practice of using system flows to estimate future benefits to system users over time.

Finally, the FERC asserts the definition of beneficiaries to be far reaching and accordingly prohibits non-voluntary assignment of 100% of transmission cost to interconnecting generators, a methodology known as participant funding as an acceptable regional cost allocation methodology. However, in order to provide maximum flexibility, the order allows transmission developers to opt to use participant funding for individual projects if desired.

ITC has long supported the policies enumerated by the FERC in Order 1000 around cost allocation, and we anticipate that these policies will serve to promote regional transmission projects by providing for appropriate broad based regional cost allocation.

While it is inevitable that the debate and roofers continue as to who pays for needed facilities, including a push for legislation by those who oppose regional transmission expansion. The FERC has made its position on these issues clear and has established a strong and comprehensive record supporting its policies.

We believe that Order 1000 fully addresses the issues that have been raised buy and take and are seeking to impede progress on transmission reform, including ensuring that the allocation of cost for transmission upgrades are appropriately aligned with benefits and allowing regional variances and not providing for a single federally mandated cost allocation methodology across the nation.

Order 1000 was crafted to address the cost allocation issues that rose out of the well known Seventh Circuit Court Decision that remanded back to FERC, its approved cost allocation formula and we believe we’ll serve to notify any real or perceived need for the legislation.

While the FERC’s order provides the needed guidance around cost allocation principles both MISO and SPP have already implemented their own regional cost allocation methodologies, which are broadly consistent with the policies outlined in Order 1000, specifically the policies adopted by MISO and SPP call for the cost for the regional high voltage transmission facilities that provide multiple broad-based benefits to be spread across that region, while more localized reliability upgrades are directly assigned to local rate zones. While each of the approaches has its nuances, the overall policies align with the new order. Of course, these regions will be required to file compliance plans through which the FERC can document this consistency.

The fact that some RTO regions have acted on the difficult task of regional cost allocation before the FERC order suggests a substantial support for the policies outlined in Order 1000, as well as the recognition of the need for transmission expansion in general.

The last major component of the FERC order is the requirement to modify existing FERC roofer provisions currently within the wholesale tariffs. In its order, the FERC calls for the elimination of the federal roofers from wholesale tariffs from projects identified in the regional plants for purposes of cost allocation.

Certain reliability projects which have no regional cost allocation components and upgrades to existing facilities will continue to have a federal roofer. In the near term, it is not clear that this will result in any real practical changes given the number of process rules that exist in both the state and federal level around such items is siding, permitting in compliance with FERC standards.

Longer term though as these processes evolve, we may reach a point where these are, where there are some shifts in the traditional allocation of right to transmission projects. However, as this plays out, we would also expect incremental opportunities for ITC as we continue to pursue new transmission development opportunities.

Overall, we will be actively engaged in the various federal and state processes addressing the roofer changes both near term and long term with a key objective of supporting rational policies that ensure a smooth transition with minimal disruption to the regulatory process required for transmission projects to move forward.

From our perspective, unlike transmission, planning and cost allocation, we do not leave the existence of a roofer in and of itself has been a major impediment to the development of transmission infrastructure in this country.

ITC has long supported the concept of a time limited rider first refusal, which we believed recognizes the important and complex roles that the incumbent utility has with respect to the planning, maintaining, operating the system and the owners rules that exist around the operation of the system.

The absence of a roofer introduces a host of issues around responsibilities that have been previously shouldered by incumbent utilities including coordination of operation, consistency and compatibility of equipment, implementation of maintenance plans, emergency restoration efforts, planning efforts with the RTO et cetera.

That being said, the FERC has signaled its views on this issue for sometime now. Most notably with the [NABARD] last summer and has continued to support its position overtime.

As such, we’ve anticipated these directional changes to the roofer construct and are poised to continue to execute on our strategy in this environment. We remain confident that our unique position within the industry resulting from our transmission only business model, existing strategic footprints coupled with their best-in-class operations and active development businesses will serve as well moving forward.

As we’ve highlighted in the past, ITC has long been an advocate of the planning and cost allocation policy reforms that the FERC has advanced. And as a result, we’re very pleased with the final order issued by FERC and believe that this is another fundamental building block in key policies needed for promoting transmission infrastructure investment across the nation.

Under the order, both RTO and non-RTO regions working with the impacted stake holders must come into compliance with the FERC’s order, which becomes effective in 60 days. Compliance requirements associated with regional planning processes and cost allocations must be filed within 12 months of enactment and compliance plans for interregional processes are due 18 months following enactment.

In addition to the issuance of the FERC Order 1000 in May of this year, the FERC also issued Notice of Inquiry or NOI around promoting transmission, investment through pricing reform, effectively seeking comments on the scope and the implementation of its transmission incentive regulations and policies under Order 879.

Before, I will provide some specific thoughts on the NOI on transmission incentives; I would like to first speak more generally about the NOIs, which I expect are relatively new concept to many.

An NOI is an informal solicitation for opinions on certain policy or an issue, in an attempt to establish or enhance a record. After comments are submitted on the NOI, the FERC may hold technical conferences, solicit testimony from various parts and possibly issue the notice of proposed rule making in an effort to obtain additional comments on a specific proposal or policy modification addressing certain issues raised through the NOI process. However, there is no established process for what happens after the close of an NOI comment period.

With respect to the NOI or incentives for transmission investments specifically, we believe that this is a business reflection of the natural evolution of the policy making and the ongoing desire to evaluate the effectiveness of the incentive policies currently in place.

We largely view this process as an evolution by the FERC as to whether or not the incentive structure established five years ago under Orders 679 is encouraging transmission infrastructure investment as intended.

In issuing the NOI, the FERC also emphasize that any potential policy changes would be commenced on a perspective basis providing regulatory certainty and signaling a desire by the FERC not to have this proceeding be disruptive to the current investment environment.

I would also note that through the NOI, the FERC was careful to highlight the fact that through the Energy Policy Act of 2005, which created Section 219 to the Federal Power Act, Congress mandated the FERC to provide incentive rates to encourage the development of transmission infrastructure particularly to reduce the congestion or deploy advanced technologies. To date, FERC has met this mandate through Orders 679.

Our view is that the current incentive policies are still in their emphasy, and while we have witnessed a good number of applications for incentives for new transmission projects, we’re still very early in the process with respect to the ultimate build out and construction at significant transmission infrastructure.

Further, we continue to witness the risks and challenges at large scale transmission projects base most recently demonstrated by the ongoing delays and ultimate suspension of the path project, which provide a good reminder of why transmission incentives are an important element in the FERC’s overall transmission policy framework.

As I previously discussed, there really is no defined path for a next step to the process beyond the submission of comments if there is in fact a next step at all. While we fully expect that policies will continue to evolve and adapt to the current environment, we clearly be contradictory for the FERC to try to significantly promote transmission investment through their recent critical policy reforms and then, significantly modify or remove the incentive targets at promoting this investment.

At the end of the day, we do not anticipate material implications to the ITC business model and in some ways, we view this as a good opportunity to highlight and reaffirm the benefits of our independent transmission-only model, which is served as good examples for tangible benefits to transmission infrastructure investment, ranging from best-in-class operations to reliability and congestion improvements to the development of competitive power markets.

In closing, the past 12 to 18 months have really served as a turning point in the advancement and evolution of transmission policy reform, which is paramount in order for significant investment in transmission and infrastructure to occur. And while our challenges still remain, the FERC has and continues to make its position clear on what needs to take place in order for our country to establish a 21^st century grid in order to meet our nation to energy goals. As we look to the landscape ahead we believe now more than ever that significant investment in transmission can begin to move forward and that ITC has strongly positioned itself as a leader in those efforts through the execution of our long-term strategy.

At this time, I’ll turn the call over to Cameron to provide an update on our financial results and outlook.

Cameron M. Bready

Thanks, Joe, and good morning everyone. For the second quarter of 2011 ITC reported net income of $43 million or $0.83 per diluted share. This compares with net income of $36.3 million, or $0.71 per diluted share for the second quarter of 2010. Net income for the six months ended June 30, 2011 was $85.0 million, or $1.64 per diluted share, compared to $70.5 million, or $1.38 per diluted share for the same period last year.

The primary drivers contributing to this increase in net income include higher rate base and AFUDC at all of our operating companies resulting from our capital investments for the quarter and year-to-date period, ad slightly lower effective tax rate for the quarter and year-to-date period, and a $1.3 million increase in net income for the year-to-date period associated with the recognition of a regulatory asset for development and pre-construction activities for the Kansas V-Plan project.

These increases were partially offset in the quarter by slightly lower revenues associated with the ITC Transmission rate freeze revenue deferral which was fully amortized in May 2011. The rate freeze deferral which stands from the 2003 and 2004 periods was amortized for rate making purposes on a straight line basis for five years from June 2006 through May 2011 and was included in ITC Transmission revenue requirement for those periods.

Given that the amortization of this deferral was completed in May 2011 there will be a $6.9 million reduction in revenues and approximately $4.3 million reduction in earnings for the remainder 2011 as compared to 2010. This expectation has been and remains fully reflected in our earnings guidance for the year.

As Joe noted we are very pleased with our overall financial results for the first half of the year. This strong performance for both the quarter and year-to-date period continues to be driven by our ongoing success in executing on our capital investment plans. For the six months ended June 30, 2011 ITC invested $271.6 million in capital projects at it’s operating companies, including $36.5 million, $66.0 million, $133.8 million and $35.3 million at ITC Transmission, METC, ITC Midwest and ITC Great Plains, respectively.

As a result of our year-to-date performance and continued progress with our capital investment plans we’re well positioned with respect to our financial commitments for the year. Consequently, we are today raising our earnings guidance per share from a range of $3.20 to $3.30 per diluted share to a range of $3.25 to $3.35 per diluted share. We are also modifying our 2011 capital guidance from the range of $560 million to $640 million to the range of $600 million to $645 million.

This modified range is premised on capital investments that ITC Transmission, METC, ITC Midwest and ITC Great Plains of approximately $70 million to $80 million, $155 million to $165 million, $255 million to $270 million and $120 million to $130 million respectively. Our new capital guidance reflects a slight increase in expectations for ITC Transmission and ITC Midwest. For ITC Transmission the increase is largely due to timing of certain reliability investments and information technology capital spend.

For ITC Midwest the updates are primarily driven by an acceleration of certain reliability and rebuild projects and increases associated with the storm restoration activities Joe previously discussed. Partially offset by lower capital investment for the Salem-Hazelton project in 2011. As we discussed last quarter we were slightly behind schedule and moving forward with the Salem-Hazelton line due to a short delay in receiving our citing relative to expectations coming into the year.

We did obtain this citing certificate on April 22 and have initiated our preconstruction activities. Consequently, some of the investments we expected to make in 2011 associated with this project will be deferred into 2012.

These overall increases in capital guidance were partially offset by lower expected capital investment for ITC Great Plains for 2011 primarily due to the cost savings achieved on the first segments of the KETA project. As a result of these realized cost savings we have modestly lowered the top end of our guidance range for ITC Great Plains.

I will now turn to our overall capitalization requirements and liquidity position starting with our financing needs. After establishing new revolving credit facilities in the first quarter of 2011 at ITC Great Plains and ITC Midwest with capacities of $150 million and $75 million respectively. We successfully undertook a process in the second quarter to renew and resize our existing revolving credit facilities for ITC Holdings, ITCTransmission and METC.

In late May, we successfully established new five year revolving credit facilities at ITC Holdings in the amount of $200 million and at ITCTransmission and METC in the amount of $100 million each. Including these new facilities we now have an aggregate $666 million of revolving credit facility capacity to support ongoing capital investment plans and the liquidity needs of the business. Our liquidity position continues to be strong and has been significantly bolstered by the new revolving credit facilities established and strong operating cash flows, which are partially attributable to realized loads in excess of our forecast for the first half of the year.

As of June 30, 2011 we had $81.2 million of cash on hand and $544 million of net undrawn revolver capacity bringing our total liquidity position to approximately $625.2 million. In addition to addressing our near term financing needs, we have also continued to actively mitigate interest rate exposure associated with our expected future refinancing of the ITC Holdings $267 million, 5.25% senior notes which are due in July 2013.

In May of this year, we once again locked in a portion of the interest rate exposure associated with the refinancing of these notes by entering into an additional forward starting interest rate swap with a notional amount of $25 million. This swap effectively locked in the underlying treasury rate for the expected new issuances of the senior notes at 4.2%.

As a result we have now established forward starting interest rate swaps with an aggregate notional amount of $125 million at an average underlying treasury rate of approximately 4%. We continue to believe that these forward starting rate swaps are the best available option for us to opportunistically take advantage of the current attractive interest rate environment.

As previously discussed all of these interest rate swaps qualify for hedge accounting treatment and as such any gains or losses on the effective portion of the swaps will be recorded to a cumulated other comprehensive income between the trade day and the effective date of the swaps and will not impact net income.

Lastly, just yesterday, we entered into a new sales agency financing agreement which allows the company to issue and sell shares of our common stock from time to time up the aggregate sales proceeds of $250 million. The term of this new agreement is up to three years. This new sales agency financing agreement replaces a similar arrangement that we established in 2008 and expired in June of this year.

The sales agency financing agreement program provides a flexible cost effective tool by which the company could issue relatively small amounts of equity if deemed necessary to support our growth initiatives. However, we do not currently anticipate the need to issue any new equity to capitalize our current five year plan as we continue to expect to be able to do so from internally generated cash and debt.

Lastly, I will turn to the overall status of our five year plan which supports our long-term compound annual growth expectation for earnings per share in the range of 15% to 17%. We continue to make very good progress against our plan and remain confident that we are well positioned to execute on it. Included within this plan are certain key capital projects which I will update you on now.

As we previously discussed earlier this year, ITCTransmission received siting approval from the Michigan Public Service Commission for the Michigan Thumb Loop project which represents approximately half of our total investment opportunity for generating our interconnects outlined in our five year plan.

The project remains on track as we advance our pre-construction activity including right of way acquisitions. Our expectation is that material capital investment associated with this project will begin in 2012.

Further we continue to see significant progress with our advanced development projects at ITC Great Plains including Hugo to Valiant, KETA and the Kansas V-Plan. These projects represent approximately $517 million of investment opportunity from 2011 to 2015 and all three remain on track to meet targeted and service dates.

Right of way acquisition is now complete for Hugo to Valiant and construction activities are underway. We efficiently broke around on this project on June 21. As for the KETA project, we have completed all of the right of way acquisitions for Phase I and continue with construction of this phase of the project. We have also obtained nearly all the rights of way required for Phase 2 and are now conducting pre-construction activities for these segments.

Lastly, in mid-July, ITC Great Plains received siting approval for the Kansas V-Plan project. With this approval we will begin pre-construction activity for the project in the latter half of the year and expect these activities to continue into 2012.

The Kansas Corporation Commission’s timely approval of this project reflects the efficient processes they have in place to address siting requirements by effectively balancing land owner interest with the need to advance critical transmission projects. We expect to provide a comprehensive update of our strategy and resulting long-term plans at our annual investor day this fall. This will include a more full term discussion of the status of our development initiatives and the refresh view of our initiatives and a refresh view of our development pipeline. Details regarding this event will be fourth coming.

As Joe discussed, our strong financial performance 2011 continues our consistent track record of delivering on the commitments that we have made to our customers and shareholders and reflects favorably on our ability to execute on our five year plan.

We are very pleased with how our entire origination have responded to the challenges inherent in our plan including now managing significant capital investment programs in five states. As we’ve progressed through 2011 we will remain focused on executing against the goals and objectives we have established for ourselves, while also positioning in the company for sustained long-term growth.

At this time, I’d like to open up the call to answer questions from the investment community.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Daniel Eggers from Credit Suisse.

Daniel Eggers – Credit Suisse

Hi, good morning guys. Just to make sure things for all the color on the kind of the FERC activity, but it is to make sure that we got the front line, right. Year-over-year of 1000 is effectively is not going to change the planning or the cost allocation designs at MISO and SPP have so far laid out the independent of a comprehensive order?

Joseph L. Welch

I don’t think it will, Dan. I think that the processes in both of those RTOs was, took a long time to get to where they are at. They’ve got everybody onboard and it seems to me that Order 1000 really comes around and supports that I do think that there might be some minor tune ups around the edges, but nothing and anything significant.

Daniel Eggers – Credit Suisse

Okay. question number two, are you guys starting to have or the engaging conversation s just some other regional generation distribution utilities as far as EPA compliance plans and may be work or planning work do you guys need to help facilitate planned closures and upgrades to keep system reliability up.

Cameron M. Bready

Dan this, Cameron. Certainly, we are accessing the markets in which were operating to try to identify where we think the implications will result from the implementation in this rules and regulations going forward. I think specifically Order 1000 part of what it tries to address is ensuring that an environment exist were policy driven transmission investment such as that which might be required to address you know plan closures resulting from implementation of new EPA rules has the opportunity to advance through our regional planning process.

So I think it is safe to say at this stage we are certainly assessing the landscape that we think will materialize going forward and starting to have a dialog with various owners of generation assets to understand what plans may be, so that we begin to put fourth and start to crystalize our transmission thinking around investments that will be necessary to support you know a stable grid and a reliable grid going forward to the extend material changes in the generating fleet resulting from the implementation of these rules.

Daniel Eggers – Credit Suisse

When do you guys think you’re going to have a better hand alone, kind of what the investment opportunity would be and I guess along those lines, Does that incremental spend into your mind or is that kind of shift the timing of other in the sense that you’ve tended to keep CapEx to self generated equity investment levels are with these recent that we you look issue equity that the if the growth opportunity was there.

Joseph L. Welch

I think there is still in your certainly you have good deal, with you’re self. There is still a lot of a uncertainty that exactly, how these rules will get implemented and when they will get implemented and certainly what the implications will be long-term. So it’s difficult to say specifically that we see our sales being in position to give real discrete capital investment guidance with respective this unique opportunity any time in the very near future. I think the way we think about it’s largely incremental to the plans that we already have established and certainly our five year plan because we didn’t really primes or we didn’t really contemplate any of these capital investment opportunity when we establish that plan last year.

To your comment around how we fund that plan I would certainly not want to leave you with the impression that our goal was to go out and establish a plan that we thought we could capitalize with internally generated cash flow only. What we did was frankly the opposite. We established the plan that we thought was realistic achievable and was based on the opportunities that we saw available for us and it’s so happen that we can capitalize that plan without the to issue equity. I think our view is for the right investment opportunities we would go out and what’ raise contemplated in five year plan.

We strongly believe that the returns we can achieve but contemplated in the five year plan we strongly believe that the returns we can achieve by investing in those projects far superior to our cost of capital and believe that would be in appropriate thing to do. So, we certainly planned based on the opportunities we see available to us and then we find the most efficient and effective way to capitalize that accordingly (inaudible) issuing equity longer-term we will we just currently don’t thank you guys. They need to do so.

Daniel Eggers – Credit Suisse

Got it great thank you guys.

Joseph L. Welch

Thanks, Dan.

Operator

Thank you our next question comes from Jonathan Arnold from Deutsche Bank.