AGL Resources, Inc. Q4 2007 Earnings Call Transcript

Feb. 7.08 | About: AGL Resources (ATG)

AGL Resources, Inc. (ATG) Q4 FY07 Earnings Call February 7, 2008 9:00 AM ET

Executives

Steve Cave - Managing Director of IR

John W. Somerhalder II - Chairman, President and CEO

Andrew W. Evans - EVP, CFO

Analysts

Gordon Howald - Calyon Securities

Faisel Kahn - Citigroup

Operator

Good day ladies and gentlemen, and welcome to the AGL Resources Fourth Quarter and year-end 2007 Earnings Conference Call. My name is Michelle and I will be your audio coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. [Operator Instructions].

I would now like to turn the presentation over to your host for today's call, Mr. Steve Cave, Managing Director of Investor Relations. Please proceed, sir.

Steve Cave - Managing Director of Investor Relations

Okay, thank you Michelle, and good morning everyone. Thanks for joining us today to review our year-end 2007 earnings results. On the call today presenting prepared remarks we have John Somerhalder, our Chairman, President and CEO, Andrew Evans our Executive Vice President and Chief Financial Officer; other members of our Executive Management Team are here, today to assist with any questions you may have.

We issued our earnings release and filed our Form 10-K this morning, copies of those documents are available on our website along with a slide presentation that provides a little more detail on our earnings results.

Before we began let me take a moment to just remind you that some of the things we will discuss today concern future company performance and include forward-looking statements within the meaning of the Securities Laws. Actual results may differ materially from those discussed in these forward-looking statements and you should refer to the additional information contained in the Form 10-K we filed this morning as well as our SEC filings concerning factors that could cause those material differences.

In addition today's discussion does include certain non-GAAP financial measures as defined under SEC Regulation G. A reconciliation of those measures to the most directly comparable GAAP measures is available on our website. And with that I'll turn the call over to John.

John W. Somerhalder II - Chairman, President and Chief Executive Officer

Thanks Steve, Good morning everyone, and thank you for joining us on the call. We will spend most of our time this morning reviewing the full and year, but certainly can answer any questions you may have specifically about the fourth quarter.

As you know we reported $2.74 per basic share for 2007, a slight increase over the $2.73 per basic share we reported in 2006. Drew will cover the financial details, but I want to make few comments about our results for the year and where we are headed for 2008.

First, let me start out by saying that we as a management team take very seriously, our accountability for the company's results and acknowledge that our 2007 results will be below the bottom end of our guidance range by $0.01 per share. The major driver for the year was the lower results in our wholesale business.

In 2007, we saw low volatility in the natural gas markets and that wallet as you all know about an 18-month period for late 2005 through 2006 of high volatility and high summer-winter spreads in those markets. Throughout 2007, we strongly focused on improving the performance of all of our businesses. The strong results we had in other business segments in 2007 offset to a large extent to lower results in our wholesale business.

We continue to strengthen the fundamentals of our utility business during the year and that focus resulted in our distribution business having a good year relative to 2006. We saw steady customer growth in our three largest franchise, Atlantic Gas Light, Elizabethtown and Virginia Natural Gas. We achieved significant reductions in customer attrition levels but economic conditions especially during the last half of the year limited new growth.

The net result was that we still had average customer growth for the year as compared to the prior year of about 0.9% and that was just slightly below our target that was in the range of about 1.25%. Importantly this top line growth was complemented by a continuing strong focus on cost management and our utilities.

As you can see from looking at a couple of our key methods for the year, our EBIT per customer improved to $149 in 2007 from $138 in 2006, an 8% increase. Our O&M expenses per customer declined to $145 in 2007 as compared to $156 in 2006. The largest factor in the decline was incentive compensation, however other areas across reduction contributed to this improved result as well. We also had several successes on regulatory fronts, and I want to touch on these again because our regulatory strategy is a key part of the long-term success and earnings predictability of our utilities.

The first is an ongoing collaborative effort between our utilities and sequent to focus on the renewal of some of our key asset management agreements. We received approval from George Public Service Commission to extend our largest asset manager agreement through March 2012, and we are actively working and have made significant progress with the other state commissions to renew or amend the existing agreements we have or that are set to expire in 2008.

We also... also we're successful in gaining approval in Virginia for WNA rider for commercial customers that applies to 2007 and 2008 heating seasons and helps stabilized rates for those customers. And as we talked about earlier in Florida we received approval from the Florida Commission in December to include the amortization of certain components of the purchase price we paid for Florida City gas and our returns on equity calculations for regulatory reporting purposes and that approval also included provisions for a five-year rates.

Turning to the Retail Energy Operations segment. SouthStar performed very well in 2007, in addition to growing its customer base in Georgia SouthStar took significant steps during the year to expand its competitive presence in other states that are deregulating their retail natural gas markets such as Ohio and Florida. They will continue to focus on strengthening their presence in those markets and evaluating entry into others throughout 2008.

Despite the market conditions of 2007, Sequent made several strategic moves during the year that have strengthened our presence in the market and has positioned us well for the future. Sequent continue to expand its asset management and marketing presence throughout the Western and Northwestern parts of the country as well as into Canada. We also strengthened our ability to better serve commercial and industrial customers through the acquisition of Compass Energy which provides a platform for us to build our capabilities in that segment of the market.

In the energy investment segment, our existing storage facility Jefferson Island had a very successful year. In addition to generating additional operating margin through optimizing interruptible capacity. The facility had a number of operating successes as well, including the perfect safety record and no service interruptions throughout the year. Also our AGL Networks business, while clearly a smaller part of our business also had a strong year of operating results and signed several significant contracts during the year that enhance the ongoing revenue stream, from that business.

During the year, we move forward three capital investment growth projects, that will add significant long term value to our company. First our Texas storage investment Golden Triangle Storage, continues to move forward as planned. We received approval from the Federal Energy Regulatory Commission on December 31, to move ahead with this project, and we accepted the certificate in January. We now are securing some of the other necessary state and local approvals, and we expect that we will began construction in April or May timeframe of this year.

The open season for storage services we held in 2007 illustrates the strong demand for this project and we will keep you up-to-date on our progress as we head into the construction phase. Clearly we believe the fundamental value of storage, and the role it will play over the next decade in the linear [ph] energy demands are strong.

We also have began work on our Hampton Roads Crossing project in Virginia which will connect the north and south sections of our service territory there and enhance our to natural gas supply for that region. We expect that project to be completed on schedule by late 2009. We also announced that as part of the Georgia Public Service Commission's approval of the capacity supply plan last year, we will diversify our supply source in Georgia and that will be by gaining additional access to LNG from Elba Island. We signed an agreement with Southern Natural Gas to obtain an undivided interest in pipelines connecting our system to Elba and we have filed for FERC approval of the project which we anticipate will achieve that some time in 2008.

The key takeaway is that we have been working on many initiatives throughout 2007 that we believe position us very well to meet or exceed expectations in 2008 and beyond.

With that let me turn to 2008 and what we expect. In our earnings release we initiated our fiscal year 2008 earnings guidance of $2.75 to $2.85 per share. This range assumes normal weather somewhat lower growth expectations associated with the economic slowdown and I talked about how that impacted growth in our Utilities a minute ago. Normalized earnings level from SouthStar and some additional business development expenses associated with our capital investment and storage projects.

I think it is important to keep in mind that we manage the business with a long term view and consistent with that there may be times when the earnings growth may not exactly be even distributed from one year to the next. That has been the case for the past two years with the more normal Sequent in 2007 which follow two years of higher earnings in that segment as well as the additional commitment of development dollars for our growth projects.

I also want to point out that yesterday the Board of Directors approved a $0.4 per share increase in our annual dividend from $1.64 per share to $1.68 per share. We have now increased our dividend in each of the past five years and have brought our dividend payout ratio very close to the peer group average which is now on the low 60% range.

With that I will turn it over to Drew for a discussion of the financial results. Drew.

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Thanks John and good morning everybody. I will run through the segments for you quickly and then we can go to your questions. As John said our comments here are focused on full year results and not fourth quarter. Its important for us to maintain our long term focus on the business and annual earnings gives us... I think a complete picture is consistent with the way we provide guidance.

Our distribution operations business continues to perform well in the challenging environment with a $30 million increase in operating margin. We invested in some additional marketing initiatives in 2007 as a way to reduce our attrition rate and attract new customers. As a result we added an additional 21,000 customers during the year which was the key driver of the segments increasing operating margin as compared to 2006. About $2 million of the increase was from higher pipeline replacement revenue in Georgia and another $2 million resulted from higher base rates at Chattanooga Gas following a rate case in 2006. As rates went in to effect on January 1, 2007.

Operating expenses were down $14 million in distribution operations mainly due to lower incentive compensation related to earnings results below our internal expectation. We had increased depreciation and amortization cost of about $6 million, but those were largely offset by $6 million net decreases and expenses from lower pension outside service, customer service expenses during the year. Coupling both margin and expense we saw $28 million improvement in earnings before interest and taxes for the distribution business.

Turning to retail operations, our SouthStar business had a very strong performance for the year with a $32 million increase in operating margin relative to the property the prior year. The margin increase was due to several factors so I'll breakdown the major components for you. We had an $8 million increase in average customer usage in Georgia as some of the conservation trends we saw in 2006 were largely reversed in 2007. We had $3 million increase as a result of SouthStar's entry into the Ohio market and additional $2 million came from adding 7,000 customers in the Georgia market, about a 1.3% customer growth rate, and an additional $2 million resulted from late payment fees in part due to fewer customers being on payment arrangement plans in 2007 as compared to 2006. In this instance, late fees were suspended as part of the plans for customers who are working through the higher bills of 2006.

SouthStar's retail margins also increased through a combination of retail price spreads and contributions from its commercial operations function which optimizes storage and transportation assets... its storage and transportation assets. One other thing I should mention is that SouthStar recorded a lower cost of market adjustment in 2006, $6 million instance there were no similar adjustments in 2007. We did not have this $6 million dollar reduction in2007.

SouthStar's operating expense increased $7 million in 2007 as compared to the prior year that was primarily due to higher payroll and incentive compensation costs as well as an increased customer care marketing costs and depreciation expenses. This was offset somewhat by lower bad debt expense. Again taking these back where we saw $20 million improvement in retail energy operations earnings before interest and taxes contribution.

In the wholesale services segment I think John curbed discussion around volatility and the impact on earnings in 2007. Just to break it down our operating margin decreased $62 million in 2007 as compared to 2006 and let me walk you through the reconciliation. The main drivers are that we had a $36 million reduction hedge gains on storage and transportations in 2007 as compared to the prior year and we had a $46 million reduction in commercial activity. Commercial activities measure that we focus on as it excludes accounting adjustments on gas inventories and other hedges related to price change. The reduction in commercial activity was driven by reduced storage spreads and lower volatility in the marketplace.

These decreases were offset by a $20 million reduction in lower cost of market adjustments and our inventory for 2007 net of hedging recoveries in 2006 and 2007. Operating expenses at Sequent for the year were down $6 million relative to the prior year. The decrease mainly reflects slower incentive compensation cost to the lower earnings results offset by higher other operating costs associated with the continued growth of Sequent. On an earnings before interest and taxes basis this equates to a $56 million decrease year-over-year.

Lets go to energy investments. Operating margin was up $4 million reflecting a $2 million increase in interruptible margin at Jefferson Island and a $2 million increase at our AGL Networks as a result of a larger customer base and revenue stream. Operating expenses were down $1 million because of lower development costs associated with our SouthStar storage projects for the year. Our EBIT in this business segment grew $5 million or increased 50% from the previous year. Interest expenses for the year increased $2 million or about 1.6% and that was due to primarily to the increase in short term interest rates and a $3 million premium that was paid in order to redeem $75 million in trust preferred securities.

This redemption premium resulted in about $0.02 per share hit their earnings in 2007 that provides longer term benefits from reducing and fixing interest expenses. Income tax expense was down $2 million in 2007 as compared to the prior year, mainly due to lower consolidated variance and slightly lower effective tax rate.

John talked about the dividend increase that the board approved yesterday, which I think continues to reaffirm our commitment to investors. We also repurchased approximately 2 million share from our... of our common stock in 2007 at an aggregate cost of $80 million. We have repurchased about 3 million shares total at an aggregate cost of $180 million over the last two years under the program that the board authorized in 2006. This repurchases was enabled only because we reduced capital expenses versus expectation around our storage builds in 2007.

So just to sum it up in 2007 on an aggregate basis we saw $56 million reduction in earnings before interest and taxes contributions from our wholesale services business, that was largely offset by $54 million increase in our distribution retail operations, energy investment and corporate segments. I think this just illustrates the fact that we have a good portfolio of businesses on which we generate stable returns over the long term that portfolio has a large measure of productivity built into it as more of 90% of our consolidated earnings before interest and taxes in 2007 was from regulated operations and assets that have stable reoccurring revenue streams associated with them.

The utility and retail delivery content in our $2.74 is much greater than that reported in the $2.73 that we reported for 2006. As a result we are very pleased with the operation of all of our business segments relative to the prior year and relative to our plan. And as John said I think we are very well positioned going into 2008.

With that we will take your questions.

Question And Answer

Operator

Thank you sir. [Operator Instructions]. And our first question comes from the line of Gordon Howald of Calyon. Please proceed.

Gordon Howald - Calyon Securities

That was close.

John W. Somerhalder II - Chairman, President and Chief Executive Officer

We recognized you.

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Hey Gordon.

Gordon Howald - Calyon Securities

Thanks. What was your achieved return... rate of return in Georgia for the full year and may be a little bit more break down on the operating cost reductions and distribution, and what portion of that for example came from the lower compensation versus some of the other factors?

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Gordon there is a table in our K looking to it I think I have got it here. We have authorized return on rate base of 8.53% and estimated 2007 return on rate base of 8.59%. So in that jurisdiction I would say we are at in, right at our authorized rate of return.

Gordon Howald - Calyon Securities

Okay.

Andrew W. Evans - Executive Vice President, Chief Financial Officer

In terms of expenses, relative to our budget we paid incentive compensation it was about $7 million lower in distribution. We had a $6 million increase in depreciation expense and that was largely offset by reductions in... lets see if I had the bucket term its mainly information technology, customer service expense was a big component as we get more of a full year run rate on call center operations and pension expense was down. That's partially due to the assumptions that we make around returns and our obligations under that plan not because of the reduction and benefits.

John W. Somerhalder II - Chairman, President and Chief Executive Officer

But if you look at the reduction, O&M for a customer, more than half of that was associated with incentive compensation, and the other major pieces was as Drew indicated, our IT spend and our ability to control costs in that area and some of our customer service costs that resulted from some of the initiatives we have had over the past several years.

Gordon Howald - Calyon Securities

Got you. Okay. If I can just ask one more quick one and I will turn it over to others. What impact did weather have on SouthStar in 2007?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

In 2007, we were pretty flat on weather in terms of our physical... overall about flat.

Gordon Howald - Calyon Securities

Overall about flat. Okay perfect. Thanks guys.

Operator

And our next question comes from the line of Faisel Kahn of Citigroup. Please proceed.

Faisel Kahn - Citigroup

Good morning guys.

John W. Somerhalder II - Chairman, President and Chief Executive Officer

Hey Faisel.

Faisel Kahn - Citigroup

What caused the incentive comp to be lower. And I know you had... you had higher targets, what were these targets and what would you say... where would you say you missed on those targets for the year?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

It's pretty straight forward, and that is coming off of two years in wholesale energy marketing a very high volatility when we put together those targets without getting too precise.

Faisel Kahn - Citigroup

Okay.

John W. Somerhalder II - Chairman, President and Chief Executive Officer

We built in some middle position between that higher volatility time period and a return to... in fact we saw low volatility in very, very few months in 2007 where you could generate value. So, it was really that change. We had to put in an assumption and that's what drove us to the lower end and at the lower end of the range we had exactly the result we should have had, which is we paid out at a lower percentage of our target.

Faisel Kahn - Citigroup

Okay understood.

Andrew W. Evans - Executive Vice President, Chief Financial Officer

If you think about the underlying mechanisms I think they work pretty appropriately and we look at the individual segments in their performance, you know distribution operations had fantastic growth year-over-year but we did have some expectations John so that it would be in the 1 to 1.25 range that's going to lead the slightly lower incentive comp. At SouthStar will our performance exceeded our expectations by with we actually had higher incentive comp and so plans really focus by business units to reach the targets that we set at the beginning of the year.

Faisel Kahn - Citigroup

Okay got you. And then in terms of the... and the reconciliation table that you guys provide the gain and loss on storage hedges and the gain and loss on transportation hedges. I know its realized or unrealized, non-cash or cash adjustments or cash earnings?

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Non-cash.

Faisel Kahn - Citigroup

Okay. And then usually you guys do a kind of table or an analysis of what the pent up margin is going forward to the rest of the storage season? What is that going forward and if you guys may be its in your 10-K I don't know...

Andrew W. Evans - Executive Vice President, Chief Financial Officer

It is. Its on page 33 and we call the roll out schedule but it shows about $11 million of expected operating revenue from physical inventory withdrawals in 2008.

Faisel Kahn - Citigroup

Okay how does that compare to previous years?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

Just to put it in context last year that roll out schedule was larger than that probably in the range of $18 million, but we only anticipated at that time about 13 rolling out in 2007. So we are really starting 2008 within a couple of million dollars of where we thought started 2007. So its fairly stable compared to the past couple of years.

Faisel Kahn - Citigroup

Got you. And then in terms of your long-term growth trajectory, its still kind of mid single digit is that fair to say in the long run?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

Yes, we've talked historically about 4% to 6% growth of earnings per share and that's very much what we continue to see is in that range. And clearly we want to push it to the higher end of that range over the long term and that will be what our goals are.

Andrew W. Evans - Executive Vice President, Chief Financial Officer

One of the things that John mentioned was that we will take a little bit of a pause as we spend a bit more on development in the storage business that's the reason we're making those investments is because we view that they increase the long-term growth rate of the business. They just are a little bit dilutive in the near term.

Faisel Kahn - Citigroup

Right, now lets look at the capital is going up before the facilities come online?

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Because we generally... because we expense our development costs until we have a FERC certificate, so any near term development gets run through income statement.

Faisel Kahn - Citigroup

What were those development costs for the year? If any.

John W. Somerhalder II - Chairman, President and Chief Executive Officer

In 2007, we were very close to about $6 million of O&M expense associated with development and we anticipate that that would be up by $2 million to $3 million for this year.

Faisel Kahn - Citigroup

Okay, got you. And in terms of customer growth you added 21,000 customers to overall distribution operation. Where were most of those customers was it Atlanta or was it farther North?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

Because most of our customers are in Georgia, that would be the largest absolute number but we actually added customers and most of our franchises especially in Elizabethtown, Virginia Natural Gas and in Atlanta Gas Light, we had a little lower growth as example I think its fairly flat in Florida we see more economic impact in that branch. So most of them are in Georgia. But also on those other franchises.

Unidentified Company Representative

13,000 of the 21,000 were Georgia.

Faisel Kahn - Citigroup

Okay. And while... I know you talked about the economic slowdown and how that might effect... how is that likely to effect Florida. Are you seeing any sort of impacts right now in Georgia?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

Yes, we are. We started the year with a target of somewhere in the 1.25% growth range for our entire distribution operations and we were actually on track as we came to the middle of the year it looked like we are very much on track to achieve that, because we had done very well on the attrition side in slowing down attrition. What we saw through the last half of the year that the new meter connect slowed down enough because of the economic impact to where I brought it down more in line with the numbers we are talking around about 0.9. So we did see that impact because of economic slowdown in the last half of the year and that was not just in Georgia that was somewhat experienced across our system. More in Georgia than the others Faisel.

Faisel Kahn - Citigroup

So the guidance you have for '08, that embed a kind of a slowing economy slowing housing growth, is that fair to say?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

Yes that is... that is one impact of that we had to look at and really two things. Number one, we really ended the year because of the last several months. We ended the year with a little lower customer count than what it looked like just several months earlier. And then we embedded a little lower growth rate expectation through the year, because of this factor as well.

Faisel Kahn - Citigroup

Okay. Fair enough. Thank you for the time.

John W. Somerhalder II - Chairman, President and Chief Executive Officer

Thanks Faisel.

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Thanks.

Operator

[Operator Instructions]. And our next question comes from the line of Ted Durbin [ph] of Goldman Sachs. Please proceed.

Unidentified Analyst

Hi guys. A question for you on permitting for Golden Triangle. What's left? Can you be a little more specific on the local permitting that's left to do may be just a update on costs of the actual project and expectations for how you'll finance it?

Unidentified Company Representative

We have two or three matters to resolve one is the U.S. Corp of Army let them permit. We have an agreement that we have to reach with the Historical Preservation Officer and we have a Railroad Commission permit on buying [ph]. We expect at this stage to have all those in place by April 1. In terms of the cost of the project the overall cost I believe we are estimating around 260 to 265.

Andrew W. Evans - Executive Vice President, Chief Financial Officer

I don't think our estimates change much from the third quarter.

John W. Somerhalder II - Chairman, President and Chief Executive Officer

That'scorrect.

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Thanks Kevin.

Unidentified Analyst

And then in terms of financing the project yourself?

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Yes generally we will refinance all of our businesses at the corporate level that's probably the most appropriate way to finance this one its not subsidiary that we like any isolation from if there are better alternatives in the market, changes over the next couple of years we'll certainly take advantage of them.

Unidentified Analyst

Okay great. And then just following up on the questions on the economic split any expectations for higher bad debt expenses in 2008?

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Its not our expectation today. I think that generally 2006 was probably a better indication of what response you get. That was more function of prices being conservatively higher than the previous year and so I think to the degree that we worry about bad debt expense really compared to 2006 actual. We are very comfortable the way we are reserved today for bad debt.

Unidentified Analyst

Okay. And then just last small one of the AGL Networks contract, you kind of see that as a one time contract or do you see some growth coming from that segment?

Andrew W. Evans - Executive Vice President, Chief Financial Officer

It's a small potion of our business but you know, its average portion is important. I think that... what they did was add some capacity in Phoenix for one particular customer, it was a quite large build out, what we got with additional capacities which should give us opportunity to build follow on revenue, their goal is just to add continual revenue streams to capacity and more about gifted in the K but in the 20% to 30% range in terms of subscription. I do think that we will see some growth by... I think that rapid growth like year is probably little bit more one time.

Unidentified Analyst

Okay thanks.

Operator

And our next question comes from the line of [indiscernible] of Banc of America Securities. Please proceed.

Unidentified Analyst

Hi, quick question follow up on Golden Triangle, I think you had mentioned where you are in the process, of permitting and then in April-May construction start date. Can you just remind me of the timing beyond that and what we are looking at in terms of if every thing proceeds according to this plan, and services?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

The major timing would be commercially... or operationally having the first cavern and service in the 2010 time period, the second cavern about a year following that, and what happens in between drilling of the wells, Brian disposal wells and leaching out the cavern and that's what takes time between start of construction in April and May and first operations of some caverns.

Unidentified Analyst

Okay and I am sorry, if I missed this, but I think last quarter you'd mentioned that there was a potential new storage project. I think you said it was in the stages of where Golden Triangle was about 12 to 18 months ago, can you provide any additional detail on that at this point?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

Only a little timing, Alvaro and you did miss that and that's one that I do need to talk about and that is part of the additional development dollars we are talking about for 2008 will be to development another site similar to Golden Triangle and that site we believe the appropriate time to announce it for commercial and other reason will be about a quarter from now so we plan to talk more about that and provide more detail about a quarter [ph] that will set our schedule very well and as you indicated it is, in the same state of development today the Golden Triangle was about a year to a year or a quarter ago. We are roughly in that same time period and we will talk more about it roughly a quarter from now.

Unidentified Analyst

Okay great. And then one macro question, can you give us a sense of what the industry consolidation outlook? What you are seeing and if you are seeing more infrastructure funds participating in picking up from the natural gas distribution companies?

John W. Somerhalder II - Chairman, President and Chief Executive Officer

That one is harder to answer but our view is that consolidation still is necessary in this industry. We have 2.3 million customers and that gives us the scale to do what we need to do. But there will be economies of scale of having a larger customer base for what we did. So we think and a number of other companies are smaller than we are. So we think all of the consolidation is important and will happen and we are logical acquirer of other LDCs but as you mentioned we have seen infrastructure funds and we have seen foreign European LDCs and utilities looking at some of the same properties. So its very competitive. We are aggressively looking at a number of those areas but were disappointed that so that's not one that we can predict will happen in the near term. But we certainly want to make sure we don't miss an opportunity. And Drew can I ask some more to that I believe.

Andrew W. Evans - Executive Vice President, Chief Financial Officer

Certainly greater competition for assets. It's a tough thing to describe. I think that generally state regulated utilities create their own difficulties for private equity firms to get approval and you have seen kind of a mix bag of success at the state regulatory level. We think we have a competitive advantage there, but we are going to have to be disciplined around price, because we return on invested capital is ultimately... is our ultimate goal.

Unidentified Analyst

Okay good thank you.

Operator

And I am currently showing that we have no further audio questions at this time. I would like to turn the presentation back over to Mr. Steve Cave [ph] for any closing comments.

Steve Cave - Managing Director of Investor Relations

I would just want to say thanks to everybody for joining us today and certainly give us a call with any questions that you have as a follow up and have a good day. Thanks.

Operator

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes today's presentation, you may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!