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Vectren (NYSE:VVC)

Q2 2011 Earnings Call

August 04, 2011 3:00 pm ET

Executives

Jerome Benkert - Chief Financial Officer, Executive Vice President, President of Vectren Shared Services and Director of VUHI

Robert Goocher - Vice President of Investor Relations and Treasurer

Carl Chapman - Chairman, Chief Executive Officer, President and Chief Operating Officer

Analysts

Sarah Akers - Wells Fargo Securities, LLC

Gregory Reiss

Paul Patterson - Glenrock Associates

Unknown Analyst -

Operator

Good afternoon. My name is Jessica, and I’ll be your conference operator today. At this time, I'd like to welcome everyone to the Vectren Corporation Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Thank you. Robert Goocher, you may begin your conference.

Robert Goocher

Thank you, operator. Good afternoon and thank you, each of you for joining us on the call today to review our 2011 second quarter results. This call is being webcast, and shortly following its conclusion, a replay will be available on our website at vectren.com in the Investor Relations section. Also on our website you can find copies of our earnings release, today’s slide presentation and our second quarter 10-Q, which was filed with the SEC earlier today.

As further described in Slide 2, I would like to remind you that many of the statements made on this call will be forward-looking statements. Actual results may differ materially from those discussed in today’s presentation.

Today, Carl Chapman, Vectren's Chairman, President and CEO, will be providing a few comments on Vectren’s second quarter results and highlights, as well as a review of our earnings guidance. Then Jerry Benkert, Executive Vice President and CFO will provide a more detailed review of our utility and non-utility results for the quarter. Following Jerry’s comments, we’ll be happy to take your questions. Also joining us on today's call is Ron Christian, Executive Vice President and Chief Legal and External Affairs Officer.

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

Carl Chapman

Thanks, Robert. I also would like to welcome everyone to today's call, and as always, we really appreciate you joining us. We think, overall, we had an excellent quarter including the receipt of an order in our electric rate case and good results from our Coal Mining business. However, ProLiance continues to struggle in this low natural gas price volatility market.

Looking at Slide 3 and 4, you should see that the key overall message again this quarter is Vectren's consolidated results are on plan year-to-date, and our 2011 consolidated EPS is still on track to be in a range of $1.60 to $1.85 per share, which we're reaffirming today. I'll discuss earnings guidance in more detail later. But for the quarter, Vectren earned $15.1 million or $0.19 per share compared to $8.7 million or $0.11 per share in 2010. Utility results were solid this quarter at $0.20 per share, benefiting from the $28.6 million electric base rate increase which was implemented on May 3. As expected, the quarter also reflects higher operating expenses due to electric generation maintenance projects related to planned outages which have now been completed.

Earnings from our nonutility businesses, aside from ProLiance, grew by $0.10 per share over the same quarter last year, led by very good results at our Coal Mining business. Also recall that the second quarter of 2010 was negatively impacted by a one-time charge of $0.05 per share from one of our legacy investments.

The continued disappointing results of ProLiance only partially offset the increased earnings delivered by our other nonutility businesses in the second quarter in 2011. Excluding ProLiance, the remaining nonutility businesses are on track to meet or exceed our 2011 expectations, including the $0.02 to $0.04 per share of EPS contribution we continue to expect from recently acquired Minnesota Limited in our infrastructure services segment.

Turning to Slide 5, I'll share just a few updates that are recent favorable developments on the regulatory and legislative fronts, particularly at the state level, in addition to our recent electric rate order, which we and others have viewed as a fair order. In Indiana, Senate Bill 251 was signed into law in May and allows for cost recovery outside normal base rate proceedings for federally mandated projects and will apply to infrastructure integrity projects, as well as costs associated with EPA mandates. It provides for 80% tracking and 20% deferral of operating cost, as well as depreciation and return on capital cost for both our gas and electric utilities.

In Ohio, House Bill 95 was signed into law and will became effective on September 1, allowing natural gas companies to recover cost outside of base rate proceedings related to CapEx programs such as infrastructure modernization. I would note that prior to the passage of this law, we already had in place a mechanism to recover the costs associated with our bare steel cast iron replacement initiative, which is approximately $17 million of CapEx spending per year in Ohio. So with these pieces of legislation now in place in Indiana and Ohio, we believe we have a regulatory framework that will enable us to recover what is expected to be an increased level of safety-related spending on the gas side of our business, as well as increased cost that may be incurred due to any new environmental standards that are implemented in the future.

And finally on the state front, our 2 Indiana gas utilities filed with the commission a joint settlement agreement with the Consumer Counselor to extend our existing gas decoupling mechanism through the end of 2015. That settlement is uncontested and we are optimistic that it will be favorably received by the commission. At the federal level, in early July, the environmental protection agency finalized the Cross State Air Pollution rule, which requires utilities in 27 states, including Indiana, to significantly improve air quality by reducing power plant emissions. Since 2001, Vectren has invested more than $410 million in emissions control equipment to improve the air quality for our region. As a result, we believe we are well positioned to comply with the new EPA clean air mandates without any significant additional expenditures, while other utilities have announced that they will retire some uncontrolled coal generation units or make significant investments to lower emissions.

Turning to Slide 6. We are reaffirming our overall 2011 earnings guidance in the range of $1.60 to $1.85 per share, which is inclusive of the $0.15 to $0.25 per share loss we are now projecting for ProLiance. This $0.05 shift downward for ProLiance is due to the continued weak locational basis and seasonal spreads, which Jerry will have more comments on later. Utility guidance, however, has been raised and narrowed to a range of $1.52 to $1.58, primarily due to electric rate relief as well as strong large customer margins and some favorable cooling weather. Nonutility expectations, excluding ProLiance, remain unchanged at $0.32 to $0.42. The consolidated 2011 EPS guidance midpoint, excluding ProLiance results, is now estimated at $1.92, up $0.05 from previous expectations due to stronger expected utility results.

With that, I'll turn it over to Jerry for more comments on our performance in the quarter, and expectations looking forward.

Jerome Benkert

Thanks, Carl. Moving on to Slide 7, as Carl mentioned, utility earnings were $16.3 million or $0.20 per share for the quarter, which is comparable to the prior year. Again, these results were largely driven by the implementation of the new electric rates in early May, offset by higher O&M expenses related to the planned electric generation maintenance projects. In addition, large customer margins continue to hold up well at or slightly above prerecession levels.

As we discussed on our last quarterly earnings call, included in our electric base rate order is a requirement to have the commission review our process for future coal procurement, not our existing contracts. As a result of this provision, the commission established a sub-docket with an initial conference with all interested parties scheduled for August 24, to discuss the review process and set the procedural schedule for the sub-docket. Related to this review, our electric utility conducted an RFP process for additional coal needs in 2012 and beyond, and expects to submit the documentation to the commission in August. Agreements in principle have been reached with 2 successful bidders in the RFP process. One of which is Vectren Fuels and I will comment on those details in a few minutes. Final negotiations are ongoing and remain subject to the commission review process.

On Slide 8, and turning to our nonutility review, we can look at the performance for this quarter, ProLiance's second quarter losses totaled $9.2 million which was a larger loss than expected for the quarter after better than expected results in the first quarter. Lower than anticipated locational bases, seasonal spreads and overall market volatility drove reduced optimization opportunities for firm transportation and storage capacity. We believe this additional compression of seasonal spreads beyond our plans and, to some degree, basis spreads was due in a part to higher than average demand for natural gas for electric generation due to the extremely hot weather.

While we watch for spreads to improve, as indicated by forward price curves, ProLiance continues to execute profit improvement initiatives, including reduction of firm transportation, storage demand cost, growth in its customer base and reduced G&A cost. For example, based upon negotiations to date, approximately $9 million of annualized fixed demand costs have been dropped on a go-forward basis. We also want to note that in May, ProLiance's standalone credit facility was renewed at $130 million. As of June 30, ProLiance's balance sheet included nearly $55 million in cash on hand, over $170 million of members' equity, and no long-term debt or working capital outstanding. Although there can be no assurance based upon the profit improvement initiatives underway, and the potential for significantly improved margins indicated by the forward price curves, we still anticipate that ProLiance should be approximately breakeven in 2013 at the Vectren level.

Turning to Slide #9, as Carl mentioned earlier, our other nonutility businesses are on track to meet their expected 2011 performance targets, excluding ProLiance. Our infrastructure services group had second quarter earnings of $2.1 million, which includes a full quarter of results from our recent acquisition of Minnesota Limited. As expected, we've already seen some growth -- revenue growth opportunities, as sharing has begun with equipment and facilities. Also, as we've said in previous calls, we continue to expect construction activity to remain strong for the remainder of the year and beyond as utilities and pipelines invest in infrastructure replacement, and demand continues to rise for new shale gas and oil infrastructure.

Further, due to seasonality, the third quarter is always the strongest quarter for infrastructure services and with a record number of crews in place as we ended the second quarter, we believe we are well positioned for another strong third quarter in 2011.

Energy services second quarter earnings were $700,000. Increased operating costs drove the results below the prior year which reflects the planned ramp-up of recruiting and hiring efforts at ESG as we aggressively position the business for future growth. At quarter's end, ESG had a record backlog of $140 million, up nearly $20 million since the end of the last quarter. This level of backlog supports our expectations that the business will reach its earnings targets for the year. As a reminder, much of ESG's business is seasonal in nature, such as school projects being completed in the summer when classes are not in session.

Turning to Slide 10. Coal mining earnings during the quarter were $8.5 million, a $6.8 million increase over the prior year's period, primarily driven by higher sales and record production. In addition, the cost per ton mined decreased to below $40 per ton in the quarter. This resulted from improved execution of the mining plan, including ramp up of production at the new lower cost Oaktown mine. While favorable mining conditions also contributed, and we may not be able to continue at that level for the full year, we do appreciate seeing the expected improvements to cost per ton as production ramps up at Oaktown 1 and later on at Oaktown 2. We remain on target to meet our 2011 production and sales goals of 5 million and 5.1 million tons, respectively. We're also pleased to report that an agreement in principle has been reached with Vectren's electric utility and our coal operations expect to provide 1.5 million tons in 2012 and 2.3 million tons in '13 and '14 to Vectren's utilities.

Negotiations continue with final terms to be reviewed by the Indiana commission as part of the new fuel procurement sub-docket. We also have recently reached 2 additional preliminary agreements with third parties for sales of additional volumes for 2012 and 2014. Assuming final contract negotiations go as planned, including the pending regulatory review, approximately 70% and 40%, respectively, of our expected production in 2012 and '13 is already subscribed.

So in summary on Slide 11. We have had a solid performance in the second quarter, with earnings of $0.19 per share. We also, as Carl commented, continue to be encouraged by a very constructive regulatory and legislative environment in our service territories. Our Utility and Nonutility businesses other than ProLiance are performing well and on track to meet our expectations for the year. And as a result, we're pleased to be able to reaffirm our consolidated earnings guidance for the year.

Operator, that concludes our remarks and we are welcome to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Paul Patterson from Glennrock Association.

Paul Patterson - Glenrock Associates

The impact of weather on your guidance for the utility, could you give us a little bit of a flavor for that? How much of that's above normal, maybe, if there is? If that's part of the discussion.

Jerome Benkert

Sure. And, Paul, we did say the weather was a contributing factor on the guidance. But of the -- of the $0.05 raised on the utility side, it's probably half or a little bit less than that. And then taking into account July itself, which was approximately or approached maybe 10% warmer than normal.

Paul Patterson - Glenrock Associates

On the coal mining, if you could just refresh my memory here. You got a lower cost per ton. What was the comparable amount in the quarter in 2010? I mean, you mentioned it as being $39.93 without freight. How should we think about that compared to last year?

Carl Chapman

Paul, we've actually got that in our metrics, in our slides and in the metrics we give each quarter, and 2010 quarter was $45.12.

Paul Patterson - Glenrock Associates

Okay. And that's what's driving it basically, correct?

Carl Chapman

Yes. I mean that and the fact that we have additional tons. We do have the new tons from the Oaktown mine which is in much fuller stage at this point.

Paul Patterson - Glenrock Associates

And then just back to ProLiance. When you mentioned this $9 million of a decrease in annualized fixed demand cost, how do you do away with a cost like that? Is there some sort of payment that's made? How should we think of that?

Carl Chapman

Well actually, for those items, they could either be a reduction in the charge because it's often we've got a lower price or that we dropped a contract, could be transportation or storage, probably more likely transportation. But it's not about us making payments to drop those. It's really because those contracts are up. Remember that we said, a third of them are up over the next 2.5 years and half of them over the next 4.5 years. And so this is just a progress on that.

Paul Patterson - Glenrock Associates

So essentially they just rolled off is what it sounds like. Is that the way to think of it?

Carl Chapman

It's either rolled off or reduced price. It just depends on the contract.

Paul Patterson - Glenrock Associates

I think you guys have pretty much -- you still think that 2013 you guys are going to be breakeven?

Carl Chapman

Yes. We've described no assurance. But if we look at the forward price curves and what we're looking at on cost initiatives, including this reduction of the demand charges, we think we should be able to be approximately breakeven in 2013.

Paul Patterson - Glenrock Associates

Any sense of 2012?

Carl Chapman

There's obviously, it's a progress. Towards it, we don't have specific numbers to share. But it really is all driven by the forward curve and the drop of demand charges as we've been describing all along.

Operator

Your next question comes from the line of Sarah Akers from Wells Fargo.

Sarah Akers - Wells Fargo Securities, LLC

Can you give or remind us of the tons that were sold or that are planned to be sold to the utilities, the Vectren utilities in 2011? You gave the '12 and '13. I'm just wondering how that compares to this year.

Jerome Benkert

Yes, I think that number for this year is just a little less than $2 million.

Sarah Akers - Wells Fargo Securities, LLC

And then on ProLiance, you talk about the opportunities to either terminate or renegotiate some of these storage and transportation contracts. Has your strategy there, and whether you choose to terminate more versus renegotiate, has that changed in the past 3 months or so given the continued challenging market environment? Or can you just give an update on your thoughts there?

Carl Chapman

I would not say it's changed in the last 3 months. We certainly have seen a drop but we believe, at this point, that an awful lot of that is linked to the heat and what goes on there. So I don't think our strategy has changed dramatically. We will continue to monitor it. And as these contracts come up, we'll look at where the market is at that point and the nice thing is we do have forward curves that we can look at.

Operator

Your next question comes from the line of Matt Fallon from Cowen Capital.

Unknown Analyst -

Just looking at your nonutility guidance and it not changing, should we assume that the cost per ton that was realized in the coal business for the second quarter is lower than what you expect for the third and fourth quarter or how do we think about that?

Carl Chapman

Well, I think we had a very good quarter. And if you look at the guidance that we provided at the start of the year, I believe it was $42 cost per ton. And it's difficult to predict exact cost per ton between $40 or $42. But we don't anticipate a lot of change, obviously, on our price per ton, because most of that coal has been sold all year. So we, obviously, are looking at being closer to that $42 number, but we'll look to try to manage the costs down as we did in the quarter if possible, but that's the guidance we gave and so that matches -- when we talk about the guidance remaining the same, obviously, we will be in that same ballpark on cost that we gave at the start of the year.

Unknown Analyst -

And then just on the 1.5 million tons that you're going to sell to the utility in '12. Is that a renegotiated contract or is there some that's going to be sold under the, I guess, higher than market utility contract?

Carl Chapman

Well, we don't view those as higher than market. Of course, they were marketed at that time that the contracts were entered into. And the contracts basically expired in terms of price after 2, 3 and 4 years. And so what it is, is that part of it tonnage will be under a price reopener. Part of it will continue under the original price, which again, was marketed at the time the contracts were entered into.

Unknown Analyst -

Okay, so is half of it new contract or can you just give a sense of what the tonnage is that’ll be under new contract versus the legacy?

Carl Chapman

Yes, I think we could say that it's roughly half and all it is, is that it's a continuation of the original contracts which those are public information that are out in the public domain. But it would be in the ballpark of half.

Unknown Analyst -

And then, I guess, when you referred to the contracts, the new contracts, with the utility, those will be filed. We should look for those, it sounded like in the next couple of months, is that safe to say?

Carl Chapman

Jerry you want to comment on timing?

Jerome Benkert

Yes, it is. I mentioned that the prehearing conference order segment schedule is 24th. So there's not really been a conference to set the filing of testimony and things. But at the earliest, it would be, I suppose, at the tail end of August or later that the contracts themselves will be on file.

Operator

Your next question comes from the line of John Hanson from Praesidis.

Unknown Analyst -

Pretty well set from the other questions, but just one follow up area in the Energy Services. I know we've been ramping up the costs and the capabilities in that area for a bit now. In the backlog, we have a kind of risk of those contracts getting funding issues with some of the things we've seen, with some of the state and federal mining issues.

Carl Chapman

I suppose it's always possible that something could change. But generally how our contracts are dealt with is that the agency is arranging the financing on the front end. So it's not -- some of them are funded from their dollars, but a lot of them are funded from financing that they get where then the savings pay for that financing. We have not seen cancellations because of shortfalls at the various municipal levels at this point. And we're not aware of anyone talking about that in any significant way.

Operator

Your next question comes from the line of Greg Reiss from Catapult.

Gregory Reiss

Quick question. On this Ohio HB 95, does this mean that there will be a rider established for any of this infrastructure spend?

Carl Chapman

Jerry, you want to comment on that?

Jerome Benkert

Yes. And both of these laws are fairly new out, obviously. So they haven't really been put in place. But 95 is capital spend focused, it's infrastructure focused, it's broad, it doesn't require mandates particularly and it allows either a deferral approach or for requests for riders. So yes, I'd say into the future, that we think that sets a stage, just like the legislation in Indiana, although its more specific towards tracking, sets the stage, such that as we have additional infrastructure spend that we think may come from governmental mandates around safety. It's -- what we would typically pursue would be timely tracking and I believe there's a foundation to go after that.

Gregory Reiss

And then also on the coal segment, I saw you guys mentioned that you anticipate Oaktown 2 to be online in 2012. Any sense on the timing of whether that's going to be at the beginning of the year, the latter half of the year? What should we be thinking about there?

Carl Chapman

We really haven't been quoting a timetable yet. As we said, we've got about 70% of our tonnage that we're planning on committed at this point. And just as we continue to have our discussions with other buyers that we're well into, that'll drive our timing. So we'll adjust based on the demand.

Gregory Reiss

And that 70%, does that include, I guess, an assumption of full production at Oaktown 2 at this point? Or is that 70% just off of a -- I guess what is that number up based off of?

Carl Chapman

Well again, it's 70% based on our best assumption right now on the timing of Oaktown 2, but that will be driven again by demand.

Operator

[Operator Instructions] your next question comes from the line of Mr. Phillips from RGO capital.

Unknown Analyst -

I have a question on Minnesota Limited acquisition. The acquisition was $83 million and if we take the midpoint of your guidance for earnings for this year, I believe the earnings work out to about $2.5 million. Consequently, I mean you could annualize that but you played a fairly high multiple for Minnesota Limited and my question is what is your hurdle rate on this acquisition? There must be some earnings growth you're anticipating, if you could just discuss.

Carl Chapman

What we could comment on is sort of what our historical view and we don't have a different view related to Minnesota. It is a partial year; that is also true. But we're pretty disciplined as we buy and as we think about selling businesses. And our hurdle rate is in that 12% to 15% range. And we fully would expect Minnesota can achieve those kind of returns for us. We do expect growth; we've described it before in 2 primary areas. One is in shale, to lay pipe to the big pipes. And also then just what's going on with all of the various infrastructure problems, whether it's San Bruno or some of the things that have gone on with oil pipelines. We see a lot of activity on the safety side. So we do anticipate growth in Minnesota Limited and think it's going to be positioned very well to take advantage of that.

Jerome Benkert

And Carl's hurdle rates he just quoted our after-tax.

Carl Chapman

Yes. After tax, right.

Unknown Analyst -

Is there a licensing or regulatory restriction from that business doing business in Canada?

Carl Chapman

We have done business in Canada in the past. I don't recall whether there's any specific issue there right now, but we would not see any problem with doing business in Canada at Minnesota Limited.

Unknown Analyst -

And one last question. As Oaktown 2 comes on, I believe I have read in your filings that your total coal production capacity will approach 8 million tons per year. I could be mistaken. But you’re selling 5.1 now and you've talked about -- did you anticipate market demand being there for you to be able to get close to that 8 million ton per year capacity?

Carl Chapman

Yes. We have shared before not only are we close by to a lot of coal-fired plants but also 2 big drivers that we've always seen on the coal side. Number one, is the scrubbers that are being installed and that continues. And number 2, we see longer term, a lot of pressure in Central App and a reduction in tonnage out of Central App. So we do not anticipate problems in selling the coal at Oaktown 2.

Operator

Your next question comes from the line of Peter Hark from ZLP Partners.

Unknown Analyst -

A couple of follow-up questions on the coal side. Just to understand that a bit better. Have you disclosed what the pricing will be for the 70% of tonnage that is already contracted including the reopeners?

Carl Chapman

We've not commented on what those prices are, other than to say that they'll be at market.

Unknown Analyst -

Okay then to understand, again, the cost of sales both per ton and the cash cost. As Oaktown 2 comes on, does the cost of sales per ton continue to go down from $40 or I think I heard Jerry say it was going to be kind of maintained at the $42 level but why wouldn't it continue to go down?

Jerome Benkert

Well maybe just a couple of thoughts here on Oaktown 2, and Carl commented earlier, we just stepped in this quarter below $40, a very nice quarter. We're running on the 6 months around $43. The estimate for the year was more around $42. And we've said as Oaktown ramps up and what we believe is as Oaktown comes up to full production, that will continue to be downward pressure on price. And the reason for that is the shared facilities; both mines are using a common rail spur and a common wash plant. And so as we add the second mine, we can spread those fixed costs more effectively. In the very, very near term when we first start Oaktown 2 production, we might pick up some additional expenses for financing and depreciation and things, so you may not see it sort of in the first several of months but as it reaches full production, it should be our sort of the lowest cost add we have long term.

Carl Chapman

And the other thing we might add to that is just that Prosperity becomes a lower percentage of the total tons as we add the Oaktown volumes. Prosperity is a 10-plus year old mine, a higher cost mine, because of that. And so as Prosperity is a lower percentage, there's a lower cost as well.

Unknown Analyst -

Does it move the cost $1 or $2 or multiple dollars down? I guess the million-dollar plus question is, can you sustain $12 plus margins and, certainly, if you're getting repriced, perhaps, the realized price per ton may come down. But we’re just trying to get a handle of what might be an appropriate run rate for sustainable margins.

Jerome Benkert

We certainly understand the interest in modeling and we understand sort of the million dollar question, but we're not out there with estimates, I mean, detailed estimates for '12 or detailed investments for '13. And part of the issue is that we're not fully there on timing. That question was asked earlier. We need to sign up for the rest of the sales in the contracts, determine more on timing. And then secondly, our history of Oaktown is not all that long yet. I mean, on the first mine, it's been over the last 6 months that we've been ramping up to 3 miners in the mine, and really getting our arms around production and heavy production out of the first mine, mining conditions that are literally in the mine and things. The second mine, we haven't broken into yet. So in some ways, it’d be early for us to be trying to provide those estimates and then secondly, we just have not yet.

Unknown Analyst -

There was some discussion, I guess, among the other utilities, coal supplies in the second quarter being constrained by the weather and by flooding conditions. And I know that you guys were in kind of an enviable position; you were sitting on some coal inventory that may have given you the ability to sell into the spot market. I didn't know how much of the sales in the quarter were spot market sales and if you could disclose the quantities involved.

Jerome Benkert

That particular situation is not one that's had much impact on us. We've disclosed all year long that we've been 90% sold. So we do have some spot sales. But there wasn't a lot of new spot sales in the quarter that's not driving the earnings. We didn't see a lot of activity because of that.

Unknown Analyst -

Maybe shifting over to utility for a second. You talked about weather having a bit of an impact. One thing that we knew about is the change in rate design on the gas side that spread more of the fixed charges across second and third quarter. And I didn’t know if you could quantify the benefit there and if we’re could see another pick up in the third quarter?

Jerome Benkert

No, in this quarter, there really wasn't a whole lot of impact on that. That was really a first quarter issue related to rate design that phased in, in Ohio.

Unknown Analyst -

Yes. I thought there was a situation where you actually spread it out of the first quarter, where the peak quarters into the off peak quarters? But I might...

Jerome Benkert

Now there was the impact of going to straight fixed variable in Ohio a year ago. But the last phase then took place during the month of February. So any impact was isolated in the first quarter.

Unknown Analyst -

And again on Minnesota Limited, you incurred the acquisition cost here without getting a lot of the revenue which will come in the second half. What is the total acquisition cost to this point including depreciation expense and other cost of capital? In other words, I’m trying to understand what the impact was of having Minnesota included in the second quarter results without having the benefit of sales and revenue that you'll see later.

Jerome Benkert

Tell you what, why don't we have a -- we'll track that down. I don't think it's all that significant, but we'll track the number down and see if we can’t make a contact back to you on that.

Unknown Analyst -

And then the other comment I saw was on energy services, your ramp up in sales force and increasing backlog there. I was hoping you could kind of share some additional thoughts there. What is the ramp up in sales force mean? How many additional people are you bringing on? And what is the significance of the increase in the backlog and how quickly are you able to recognize that?

Carl Chapman

Well what we really described was most of the difference in the earnings year-over-year is due to the ramp up. And those folks do take a period of time to get to where they're generating sales. So that ramp up of our staff is not what's driven our backlog. That backlog is strong without the additional staff. And the additional staff does take a bit longer over, really a multiple, maybe a year or two for them to really start adding to sales. So the backlog is all about really the fact that so much of our work, a lot of it's schooled, therefore you see more of it in the third and fourth quarter than you will in other periods of time. But the ramp up is not what drives the backlog at this point. The backlog is strong without the additional sales folks.

Unknown Analyst -

How big is the sales force now? How much has it grown?

Carl Chapman

I don't remember the exact number. The pure number of people would not be large. What I would just say is if you'll look at the year-over-year earnings, you get a good sense of what that's cost us to add.

Operator

There are no further questions at this time. I'll turn the call back over to the presenters.

Robert Goocher

Thank you, operator. Well, we'd like to thank everyone for joining us on our call today. On behalf of our entire team, we appreciate your continued interest in Vectren. And we want to invite you to please contact us if you have any follow-up questions. With that, we'll conclude our call for today. Thank you for your participation.

Operator

This concludes today's conference call. You may now disconnect.

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