Questar Management Discusses Q3 2012 Results - Earnings Call Transcript

Oct.31.12 | About: Questar Corporation (STR)

Questar (NYSE:STR)

Q3 2012 Earnings Call

October 31, 2012 9:30 am ET

Executives

Ronald W. Jibson - Chairman, Chief Executive Officer, President, Chief Executive Officer of Questar Gas Company, Chief Executive Officer of Wexpro, President of Questar Gas Company and President of Wexpro

Kevin W. Hadlock - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

R. Allan Bradley - Executive Vice President, Chief Executive Officer of Questar Pipeline and President of Questar Pipeline

James R. Livsey - Executive Vice President and Chief Operating Officer of Wexpro

Craig C. Wagstaff - Executive Vice President and Chief Operating Officer of Questar Gas

Carl Galbraith

Analysts

Carl L. Kirst - BMO Capital Markets U.S.

Timm Schneider - Citigroup Inc, Research Division

Leon Dubov

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Daniel M. Fidell - U.S. Capital Advisors LLC, Research Division

Operator

Good morning. My name is Adam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Questar Corporation Third Quarter 2012 Earnings Release Conference call. [Operator Instructions] I will now turn the call over to Chairman, President and CEO, Ron Jibson. You may begin.

Ronald W. Jibson

Thanks, Adam. Good morning, everyone, and thanks for joining us for Questar's third quarter 2012 earnings conference call. We sincerely appreciate you joining us today given what many of you on the East Coast are dealing with. I know I represent our management team and our entire workforce when I say our thoughts and concerns are with all of those of you who are affected in the areas by this mega storm Sandy. We certainly hope you and your families, friends and coworkers are okay, and wish you the very best in -- as you recover and deal with the aftermath of this terrible storm.

I would like to turn the time now to Kevin Hadlock, our Chief Financial Officer, who will go through some of the financial summaries.

Kevin W. Hadlock

Thank you, Ron. As Ron mentioned, I'm Kevin Hadlock, Questar's Chief Financial Officer. With Ron and me today are Jim Livsey, Executive Vice President and COO of Wexpro; Allan Bradley, Executive Vice President and CEO-Questar Pipeline; and Craig Wagstaff, Executive Vice President and COO of Questar Gas.

During this call, we will be referring to our third quarter 2012 earnings presentation that can be found on our website at www.questar.com.

Moving to Slide 2. Before we begin, let me remind you that we will be making forward-looking statements during our call today and actual results could differ from our estimates for a variety of reasons that we describe in our SEC filings. Also, this call may reference non-GAAP financial measures. Our slides in the appendix provide reconciliations to these measures.

Let's begin with a review of the third quarter on Slide 4. Yesterday, we reported third quarter 2012 net income of $33.8 million or $0.19 per diluted share. This compares to net income of $36.1 million or $0.20 per diluted share in the same period of 2011.

Operating cash flow was strong in the first 9 months of 2012, totaling $357.9 million, similar to the same period last year. Overall capital investment with $85.3 million, down about 24% from the third quarter of 2011. For the year-to-date period, capital spending was $276.1 million, which is up 8% compared to the same period last year. We continued our share repurchase program in the third quarter, spending about $19 million to buy back almost 927,000 shares.

Turning to Slide 5. All business units performed in line with our forecast in the third quarter 2012. Net income was down $2.3 million or $0.01 on an earnings per share basis versus the same period last year.

Moving to Slide 6. Questar Gas, our retail gas distribution utility, showed a slight increase in gross margin to $38.3 million. Adjusted EBITDA was lower by $2.5 million and the seasonal net loss was larger by $1.4 million compared to the same period last year. This was driven largely by increased employee-related and allocated corporate costs. Questar Gas' capital investment in the third quarter of 2012 was $34.9 million, an increase of $9.7 million over last year's third quarter. This was driven by the timing of infrastructure replacement spending and a higher customer growth.

Turning to Slide 7. Wexpro, our cost-of-service natural gas development company, grew adjusted EBITDA to $61.3 million, up $5.3 million or 9% compared to the third quarter of 2011. Net income was up $800,000 to $26.4 million, an increase of 3% over the same period last year. These results were driven largely by a higher 12-month average investment base, which increased $51.4 million or about 11%. Wexpro invested capital of $36.2 million in the third quarter of 2012, down $7.1 million from last year's third quarter due to Wexpro's lower working interest in wells drilled during the third quarter of 2012.

Moving to Slide 8. Questar Pipeline, our interstate natural gas pipeline and storage business, delivered solid results in the third quarter of 2012. Revenue was down slightly driven primarily by lower transportation and natural gas liquid revenues. The lower liquid revenues were partially offset by gas received from Clay Basin customers under an agreement that allows Questar Pipeline to recover any shortfall between the liquid revenues and the cost-of-service for conditioning gas at Clay Basin to meet third-party pipeline gas quality specification.

Net income was $17.1 million, down $1.7 million compared to the third quarter of 2011, driven primarily by lower revenues, higher operating expenses and higher interest expense, partially offset by gains from asset sales. Capital investment in the third quarter of 2012 was $26.4 million, lower than the same period last year due primarily to the completion of Pipeline's Main Line 104 expansion project in October of 2011.

Moving to Slide 9. With regard to cost, Questar's third quarter 2012 consolidated operating and maintenance costs were up $1.4 million from the third quarter of 2011 due largely to higher labor and maintenance expenses. General and administrative expenses were up by $4.9 million primarily due to the higher employee-related costs. Production and other taxes were $2.4 million lower due to lower natural gas prices, partially offset by higher production volumes. Depreciation of the third quarter of 2012 was up $5.8 million compared to the third quarter of 2011 due to higher capital investments. Consolidated interest expense was $1.2 million higher as we replaced short-term borrowings with long-term debt.

Turning to Slide 10. The company continues to generate strong cash flow. For the first 9 months of 2012, operating cash flow before working capital changes totaled about $358 million, essentially flat with the prior year. At September 30, Questar had net available liquidity of $237 million in the form of unused commercial paper capacity. From a capital markets perspective, in the fourth quarter of 2012, Questar Gas will issue $150 million of long-term debt to refinance about $134 million of debt maturities.

With that, let me turn the time back over to Ron to discuss operations and Questar's outlook.

Ronald W. Jibson

Well thanks, Kevin, for that summary. With the first 9 months of the year behind us, we are pleased with the performance of Questar's businesses, all of which continue to perform well into the third quarter. Let's begin with third quarter highlights on Slide 12.

Questar Gas continues to demonstrate consistent performance. During the third quarter, gross margin increased $500,000 due to an infrastructure replacement cost tracker that allowed us to earn a return as we placed new facilities into service. This program is extremely important for Questar Gas, our customers and our shareholders. We expect to spend about $55 million in 2012 on the infrastructure replacement program.

During the third quarter, investment in this program was $13.3 million. Questar Gas also benefited from customer growth. Over the past 12 months, we added almost 13,000 new customers, an increase of 1.4%, which continues to outpace the national average.

Let's move to Wexpro, which delivered impressive results in the quarter. The Wexpro model has created tremendous benefits for Questar Gas customers over the years. Most importantly, it provides a long-term hedge against natural gas price volatility. We've consolidated our development in the Vermillion Basin to our most prolific and lowest-cost fields, Canyon Creek and Trail. In the third quarter, Wexpro's 12-month trailing average finding costs were $1.14 per Mcfe, consistent with the 2011 average.

Wexpro's investment base at the end of the third quarter rose to $530 million, an increase of $65.8 million compared to the end of the third quarter last year. Wexpro's production was 15.6 billion cubic feet equivalent in the third quarter of 2012, an increase of 19% over the year-ago period. This higher production volume, combined with the low finding cost natural gas coming from our current drilling program in Vermillion, resulted in a $0.43 per decatherm reduction in the cost of Wexpro gas delivered to Questar Gas customers in the third quarter of 2012 versus the prior year.

Questar Pipeline, our natural gas transportation and storage business, performed in line with the third quarter of 2011 and consistent with our expectations. During the third quarter of 2012, Pipeline accepted FERC's order issuing a certificate to construct the Uinta Basin high-BTU gas transportation project. Also in the third quarter of 2012, Questar Pipeline entered into a long-term agreement to provide firm gas transportation to a new gas-fired power generation plant in Utah.

Turning to Slide 13. Over the past year, we have been working closely with Utah and Wyoming regulators to create a mechanism that would allow Wexpro to add new properties for the future benefit of Questar Gas customers. Given the current low-price natural gas environment, we believe this is the right time to add new assets for future development. We would not expect that adding properties in Wexpro would materially change our current 5-year drilling plan, but it would accomplish our objective of extending the life of cost-of-service production. Questar Gas applied for expedited approval of the Wexpro II Agreement with the Utah and Wyoming Public Service Commissions on September 17, 2012, which included the supporting signatures of the Utah Division of Public Utilities and the Wyoming Office of Consumer Advocate. The proposed agreement is modeled on provisions of the original Wexpro Agreement. Wexpro would earn the utilities' cost of capital on the upfront investment. All successful post-acquisition development costs would earn Wexpro's after-tax return on its investment base. Wexpro would evaluate and purchase properties at its own risk and submit these properties for inclusion on a case-by-case basis. We expect decisions on Wexpro II from the Utah and Wyoming Public Service Commissions in the coming months.

Moving to Slide 14. Questar's return on equity continues to be industry-leading. For the 12 months ended September 30, 2012, we delivered a consolidated return on equity of 19.7%. This superior return is supported by Wexpro, which provided an ROE of 20.2%. Questar Pipeline delivered an ROE of 11.2%, which is near its authorized return. On a financial basis, Questar Gas' return on equity was 10%.

Let's move to Slide 15. Looking at 2012, we remain confident in our guidance range in spite of lower natural gas and liquids prices and higher pension costs and property taxes. We remain comfortable that net income could range from $1.15 to $1.19 per diluted share. The businesses have executed on their capital plans very efficiently, and we expect to spend very close to our $350 million full year capital budget. We are targeting a long-term dividend payout ratio of about 60%, which means we still have room to grow the dividend faster than earnings near term. For 2012, we expect to repurchase about $90 million under the $100 million share repurchase program authorization.

Moving to Slide 16 and some perspectives on our 5-year outlook. We plan to continue investing in the long-term growth of Questar and expect to maintain a compound annual growth rate averaging 4% to 6% over the planning horizon. While the U.S. economy continues to show signs of weakness, economies -- economists are forecasting that Utah's recovery should outpace the national average. We continue to see strong signs of economic development in the state. Utah and Salt Lake City consistently ranked high in business attractiveness list compiled by major publications. We expect natural gas prices to remain soft over the next several years. While we have limited direct exposure to commodity price volatility, sustained low natural gas prices have an impact on drilling activity in the Rockies. In addition, we anticipate ongoing cost pressures related to pension costs and property taxes due largely to the current low interest rate environment.

Since our restructuring 2 years ago, we've been successful in reducing certain costs. Moving forward, we are sharpening our focus to reduce our overall cost structure. As evidence of this commitment, earlier this week, we announced the retirement incentive program for eligible employees. This program should help us reduce our labor costs. Looking forward, there are a number of uncertainties that could materially impact earnings particularly in 2013. These include critical economic and tax variables, pension and benefits issues and interest rates, some of which could have greater clarity by year-end. As a result, our preliminary 2013 earnings guidance is between $1.12 and $1.20 per diluted share. We will update guidance in February as part of our 2012 year-end review. In the future, the timing and range of earnings guidance may vary as we evaluate certain circumstances at that time.

Moving to Slide 17. The long-term outlook for growth at Questar Gas remains strong. However, with higher costs and timing of the 2013 rate case, we are expecting 2013 earnings to be flat relative to 2012. After 2013, we project compound annual rate base and earnings growth of 7% to 9% over the 5-year planning horizon. This growth rate reflects customer growth expectations of 1.5% increasing to more than 2% over the 5-year plan. We are encouraged by the uptick in customer growth to 1.4% in the third quarter. We plan to spend $55 million annually on the infrastructure replacement program over the planning horizon. For 2013, we are forecasting total capital spending of $195 million. Questar Gas is required to file a general rate case in Utah in the first half of 2013, which will review the infrastructure replacement tracker. Any increase in revenue will primarily affect earnings after 2013.

Moving to Slide 18. Wexpro continues to project compound annual earnings growth of 4% to 8% through the 5-year planning horizon. As we previously indicated, the sustained low gas price environment could result in a growth rate towards the lower portion of the range. In 2013, we plan to transition our drilling capital from Vermillion to Pinedale, which is operated by a third party. Next year, the Pinedale drilling program will move to lower finding cost acreage with a higher Wexpro ownership percentage. As a result, Pinedale finding costs should decline to levels comparable to our current Vermillion program. We plan to invest between $500 million and $600 million in capital through 2017, including $135 million for 2013. Note that the 2013 capital forecast includes no Wexpro II investment. If regulatory approvals are obtained and attractive acquisition opportunities arise, we could invest more than the baseline forecast of $135 million.

Moving to Slide 19. While Rockies' natural gas production is forecast to be relatively flat over the 5-year plan, Questar Pipeline's strategic position centered around 4 key Rockies hubs remains very strong. Our long-term demand-based contracts mitigate the potential negative impact on transportation revenues in the core of our system over the 5-year plan. We are expecting lower Questar Pipeline earnings in 2013, returning to 2012 earnings level towards the end of the 5-year plan. The lower 2013 forecast is due to lower liquid volumes, higher costs and lower rates on Southern Trails Pipeline. We continue to look for opportunities to provide value-added services to producers. For 2013, we are forecasting capital investment of $105 million to fund maintenance capital and system expansions to serve new basin producers and a new power generation project in Utah.

Before I leave Questar Pipeline, I want to mention that we've commenced this strategic review of Pipeline's noncore assets. This review will focus on Overthrust and Southern Trails Pipelines. All strategic options will be analyzed including joint ventures, asset sales or other alternatives. We will provide updates as we move forward.

Wrapping up on Slide 20. In conclusion, I want to emphasize Questar's unique strengths. Our integrated operations span the entire natural gas value chain from wellhead to burner tip. Our constructive regulatory relationships produce appropriate risk-adjusted returns. Questar has an attractive organic growth outlook, and we're excited about the new opportunities for Wexpro II and Questar Fueling. Finally, our conservative balance sheet supports our earnings growth, dividend and share repurchase program. And with that, we'd be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Carl Kirst from BMO Capital Markets.

Carl L. Kirst - BMO Capital Markets U.S.

Could you -- with respect to the -- looking at all opportunities, is it possible you can give us a sense for what the cost basis of those assets may be, just to kind of roughly ZIP code the range?

Ronald W. Jibson

I imagine you're referring to the Pipeline assets, Carl.

Carl L. Kirst - BMO Capital Markets U.S.

Correct, sorry.

Ronald W. Jibson

Yes. We -- I'll give kind of an overview and then ask Allan to give some additional color on this. We are again just announcing at this point that we're going to be looking at those strategic alternatives. As part of that, we'll be evaluating that value. At this point, we really can't say what that would be. But Allan, anything you'd want to add to that?

R. Allan Bradley

I think, Carl, we're aware that there could be some tax leakage if we were to go down a pure sale route, but right now, all of our options are open. As Ron said, to give a little color around and over the last 6 months, we've really seen this -- seen a stepped-up increase on the part of third parties inquiring about the business strategies, joint ventures, acquisitions of different pieces of our pipeline systems and I felt we wanted a more disciplined approach looking at all these alternatives that brings in all of our management team as we go forward rather than leave it up to individual business developers. I think it's an exciting time for these assets, whether it's Southern Trails or Overthrust. They're ideally positioned for this type of analysis. So all I can say is just stay tuned. And as Ron said, we'll keep you apprised as we move forward with the process.

Ronald W. Jibson

Carl, we can give you the net underappreciated value of those assets currently. And, Kevin, why don't you...

Kevin W. Hadlock

Yes. Carl, you can go actually to the Form 2s for Overthrust and for Southern Trails, and what you'll find is the underappreciated value for Southern Trails is right around $100 million of net assets. For Overthrust, that same value is about $350 million.

Carl L. Kirst - BMO Capital Markets U.S.

$350 million?

Kevin W. Hadlock

Carl, there's been -- deferred tax is in such there that you'd have to consider in your analysis. But those come straight from the Form 2s.

Carl L. Kirst - BMO Capital Markets U.S.

Okay, no, I appreciate that. And then I apologize if this was mentioned. But is there an understanding these things can have a life of their own and you spend the time you need to go to assess all opportunities? Is there roughly a time frame that you think the strategic review could be concluded? Is it 6 months shorter or longer?

Ronald W. Jibson

It's -- again, Carl, we're taking this very seriously. That's the reason we brought it up today so it will be a priority for us in the next -- in the coming months to address these issues and to really do a deep analysis on it. So it's not something that we're going to just say over the next several years. I think it'd be more over the next several months, we'd be looking at this.

Operator

Your next question comes from the line of Timm Schneider from Citigroup.

Timm Schneider - Citigroup Inc, Research Division

First question is can you go over what's driving that year-over-year increase in CapEx, specifically, kind of the gas utility and the pipeline segments?

Ronald W. Jibson

You bet we can go over those. Kevin, do you want to...

Kevin W. Hadlock

Sure. You'll see that in Wexpro, we're essentially flat as we walk through that in the conference script. With Questar Gas, we're seeing really 3 things that are driving the increase. One, of course, is we're seeing a ramp-up in customer growth that we're expecting for next year. We're also looking at and expecting to execute on a Southern system reinforcements and upgrade that will require some additional capital. That, of course, supports the southern part of our system that has seen such tremendous growth through the housing boom and we're starting to see some of that growth returns. So we feel it's important to get that project in. We also, as we mentioned on the call, have a power project that has jointly being done by Questar Gas and Questar Pipeline that's going to add to that capital budget for gas. And finally, with Questar Gas, we are seeing increased safety and integrity spending as utilities around the country are all experiencing. With Questar Pipeline, we're seeing the same kind of maintenance and integrity spending increases similar to what we're seeing in Questar Gas. In addition, Allan and his team are executing onto Uinta -- a Uinta Basin expansion that is going to require some capital and then as I mentioned, the joint project with Questar Gas is driving some of that increase spend for that generation project. So overall, those are the increased dollars that you see and, of course, we have not included in that, as Ron mentioned in the script, anything related to Wexpro II property acquisitions should we be in a position over with that nor does it include in that estimate any spending for Questar Fueling that at this point, we continue to be excited about and do expect to spend some money in that next year.

Timm Schneider - Citigroup Inc, Research Division

Got it. What's your gas price assumption at Wexpro for next year based on that $135 million CapEx?

James R. Livsey

Yes, this is Jim. And with Wexpro, we look at the 5-year forward curve. And next year, the anticipation is that we'd be in the $380 million numbers what the forward curve would look at per MMBtu and so our development program, both as to the 380 numbers as well as the whole 5-year outlook, we see cost-of-service coming from the gas that we're developing, $380 million, $350 million below very favorable with the forward curve competitive with next year's price.

Timm Schneider - Citigroup Inc, Research Division

Got it. And then just more of a strategic question. I guess what has changed in your mindset now you can book [ph] at the -- or look at certain aspects of the pipeline segment, I guess, as noncore to just kind of the flattish earnings growth profile over the next couple of years? If we could get some more color in that please?

R. Allan Bradley

Sure. Tim, this is Allan again. It seems to me that when we're looking at what's happening in the industry with respect to focus on liquids-rich plays, sort of the strategic impetus or midstream companies asking about whether or not certain sections of pipelines could be spun down for gathering processing. We're seeing inquiries into re-purposing pipes for either water, CO2, even crude. That's certainly a topic as you look at basis differentials on the crude side around our Rockies footprint and also Southern Trails. I think it's just a market push that really behooves us to look at all of our strategic alternatives around noncore assets. And I think doing it this way really will add some structure and some visibility to the process in a way that will drive value for our shareholders in whatever transaction we pursue, and we're not under any pressure to pursue on just for the sake of pulling some cash flow forward. I think this is truly a strategic review around all options.

Operator

[Operator Instructions] Your next question comes from the line of Leon Dubov from Luminus Management.

Leon Dubov

I was wondering could you give us a little more color how to think about CapEx levels going past 2013 and by business segment, if you can? If not, just overall?

Ronald W. Jibson

You bet. We'll start with Wexpro, and Kevin will be right here.

Kevin W. Hadlock

So this is Kevin, Leon. As we think about Wexpro capital, it's really going to be driven by what the gas prices do long term. And so I think of all that capital budgets that we have, Wexpro's is probably going to be the most sensitive to where gas prices are long term. But in terms of range, if gas prices are really low. We could see years that are maybe just under $100 million to a big increase in gas prices. It will allow us to spend more akin to the levels you've seen over the last couple of years.

Ronald W. Jibson

Jim, anything else you want to add?

James R. Livsey

Yes, I would agree with Kevin. And remember that we're just fitting with other owners in the Pinedale plan of development and we have 3 areas of ownership. We're moving out of the southernmost area of ownership what we call Participating Area "B" moving into that middle rectangle we showed you in our IR presentations. The good news is as we move north, we're going to enjoy lower finding costs, lower cost of service and so our capital is going to be linked with that Pinedale development program also as we move into those future years.

Ronald W. Jibson

Now then I'll ask Craig Wagstaff if he'll cover Questar Gas as capital.

Craig C. Wagstaff

Yes. Leon, as we on with the 5-year plan, we're going to be pretty consistent over the plan of about $190 million to $200 million, and Kevin has alluded to next year's spend and that'll be consistent going forward. Customer growth will drive that. Our feeder-line replacement program will drive that, as well as other system integrity enhancements and enforcements that we have going forward. So $190 million to $200 million is what you will see on the plan.

Ronald W. Jibson

Then Allan, on the pipeline?

R. Allan Bradley

Questar Pipeline, as we've already pointed out, is a little over $100 million in 2013. We do have some projects 2014, 2015, but right now, there's probably in a $70 million to $80 million range in those 2 years and then less visibility on projects in the out-years, probably more maintenance directed in the $40 million to $50 million CapEx range for the last couple of years of the plan.

Kevin W. Hadlock

So Leon, just sort of put all that together. We'd sort of expect to be in that $350 million to $400 million range absent anything on Wexpro II or on Questar Fueling with certainly 2013 being a bit of anomaly with some of these projects that we walked through earlier.

Operator

Your next question comes from the line of Chris Sighinolfi from UBS.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Just a couple of questions for you, many of them are already hit. But just looking I guess following on Leon's question about Wexpro CapEx. Just a quick question on Slide 18, when you guys identified $500 million to $600 million cumulatively through '17, does that include '12? I mean, is that 2012 to 2017? Or is that '13 to...

Ronald W. Jibson

That is beginning 2013.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Okay. Just wanted to make sure I understood that correctly.

Ronald W. Jibson

I appreciate that clarification question.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

And then I guess the question with respect to guidance, just thinking about setting that range. I know it's, I mean, I know first-hand forecasting is a challenge. But thinking about the low end of that range, thinking about $1.12 -- I mean, obviously, Ron, you highlighted some of that, Kevin elaborated it on some of the weakness projected at pipeline, I guess, more of a flattish situation at the utility. And obviously, we're seeing strong investment opportunities at Wexpro and the continuation of the investment base growth there. So I'm just wondering, if I've understood that correctly and above and beyond the segment results of there's anything happening at sort of the corporate cost level that's above and beyond or I guess below the line from those operating segments?

Ronald W. Jibson

Yes, it's a great question, Chris, and we appreciate it. I think by way of clarification, the major reason that we put that range out there is a lot of the unknowns that we have right now. We mentioned the impacts that many are experiencing. We've mentioned costs and tax issues that we don't have good clarification on yet. The low end of that range is really tied to the unknown. So we don't know right now. We hope to have better clarification by the end of the year on. We certainly have identified some of those areas by segment. From a corporate standpoint, we've been mentioning that since the restructuring, we were going to be focused on cost structure. We continue to be focused on that. Again, I mentioned that we've instigated a retirement incentive plan, which we feel like will bring our actual labor cost in line with where we need to be going forward with the 5-year plan. So '13 is one of those years that we just -- we've got some issues there that we're looking at but a lot of it is just the unknowns that we're dealing with as far as pension tax and some of the issues that we hope to have some clarification on after the first of the year. One of the things that we'll do is, as I mentioned, we plan to come out in February as we have the year-end data and again, better clarification on some of these issues that are out of our control and be able to give a little more defined guidance at that time.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Okay. And I guess just following up a little bit quickly on that, Ron, the current dividend run rate, $0.68...

[Technical Difficulty]

Carl Galbraith

Are we back?

Operator

Yes, you are. You're back in the room now.

Ronald W. Jibson

Okay, thank you. Chris, it wasn't that we didn't want to hear your question. We're not sure what happened there. We got disconnected so -- we probably didn't catch most of it.

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Okay. Yes -- no, I was just following up on the question about or your response on sort of the uncertainties as it pertain to earnings. And you mentioned as part of that some of the uncertainty on what's going to happen on the taxation front. I'm just curious with $0.68 annual run rate on your dividend, $1.16 at the midpoint of next year's initial guidance range, sort of the 59% payout. If the taxation issues change on the dividend front, are you guys -- I guess, 2 parts to this question: a, are you comfortable if you think earnings are going to accelerate '14 to move past your 60% target for period, if you think it's going to moderate after that with faster earnings growth? And the second part of that question if taxation issues change in the dividend front, how do you guys think about dividend policy in that sort of circumstance in that sort of environment?

Ronald W. Jibson

Yes, 2 good questions. First of all, on the '14 and beyond, yes, we're very comfortable with where we can be there, and we are staying with our strategy. We've continued to drive towards that 60% payout ratio. We feel confident we can do that. And our strategy really hasn't changed. One of the things that we try to do is be consistent at Questar with our strategies and our plans recognizing that there's always those issues of bonus depreciation and tax issues that we don't have control over. But it really -- we look at those as short-term issues. Some of those will certainly be issues that we'll have to deal with in 2013. But I think as far as our dividend strategy, we continue to be positive about that as the board will continue to look at it strategically. But we have not changed our emphasis on getting to the 60% payout and being aggressive with those increases at this point. When we would be fine to be above 60%? Temporarily, if that's what it took.

Operator

Your next question comes from the line of Dan Fidell from U.S. Capital Advisors.

Daniel M. Fidell - U.S. Capital Advisors LLC, Research Division

Just a couple of quick questions on my side. Can you give us just a little bit more color on the customer growth improvement, sort of what level of customer growth are you currently have embedded into your 2013 guidance? And is this kind of a rate you expect is going to continue kind of over the longer term? Just how are you thinking about customer growth in terms of the forward growth plan?

Ronald W. Jibson

Yes, this is Ron. Let me give you kind of a general overview of what's happening in the area in Utah, but then I'll have Craig drill down on the detail. Essentially, we continue to see a very positive economic outlook development climate in the state. We've been mentioned by Forbes Magazine and others as being the #1 state to do business and for careers and so forth. A lot of accolades coming to the state recently. We continue to see a very, very strong interest from companies throughout the country in relocating to Utah. We have a highly educated workforce and labor costs and such. We're in a position where it's very attractive. I think one of the key criteria is that is showing -- people are showing a lot of interest in the state over is our low-energy costs, and we certainly have a lot to play in that as far as we're the lowest rates in the nation with our distribution business. But also the fact that energy costs are about 30% below the national average in Utah. So all of the stars aligned for a good economic development climate here and we're certainly seeing the impacts of that with our customer growth. So Craig, why don't you specifically talk about what's happening at Questar Gas and what we've seen?

Craig C. Wagstaff

Yes. For 2013, we've got about 1.5% of growth rate in there for our customers and then over the plan, we go just slightly over 2% and the source reviews along with what Ron has indicated is we have 4 sources we use for forecasted data on this. We've actually, in our plan, come below with that forecasted data is so we're being conservative. We feel on the numbers. But you'll see 1.5% next year points slightly over 2% or just above 2% by the end of the 5-year plan.

Daniel M. Fidell - U.S. Capital Advisors LLC, Research Division

Very helpful. Just another quick question. You'd mentioned the retirement program that you announced, I think you said earlier this week or last week. Can you just give us a little more color around that sort of how many eligible folks? Do you expect to take a one-time charge for something like that into 2013? Is that in your 2013 guidance or not? I guess just a little bit more color around what you're doing with that program?

Ronald W. Jibson

Yes. First of all, it is something that we have just recently looked at as we rolled up the 2013 strategic plans. But we've also been focused on those -- that cost structure since the restructuring a couple of years ago. We feel like this is our opportunity to basically reset on that capital structure and/or that cost structure I should say and gives us that opportunity. It's not an early retirement. It's a retirement incentive essentially to help bridge for our employees the increased health care costs that they may incur in retirement and we feel like it would allow us to have our cost structure in place for the 2013 plan. But I don't know Kevin or Dave Curtis, additional color on that?

Kevin W. Hadlock

Yes, let me just add as it pertains to the guidance ranges. We would expect a modest one-time charge relative to these payments that we would make. We'd expect that, that one-time charge would be taken in 2012 and that would be outside of the guidance range that we provided for 2012 as a one-time item. For 2013, any incremental cost savings that we would see certainly is comprehended by our guidance range of $1.12 to $1.20.

Daniel M. Fidell - U.S. Capital Advisors LLC, Research Division

That's great. Very helpful. And last question, if I may. Just you'd mentioned the expected rate case filing the first half of next year. Is that -- should we assume that some of the pressures you're looking at in the next year pension and other cost issues will be or at least you'll seek to address those in the case?

Ronald W. Jibson

Yes, most definitely, Dan. The case was something that our last case was in 2010. At that time, it's when we were -- while the infrastructure's tracker that we have in place for the replacement of our large diameter steel pipelines. As part of that settlement in 2010, we were indicated that we would come back in the middle of 2013. And in doing that, we'd review the model which has worked extremely well on the replacement program. Any revenue issues and so forth would also be part of that rate case. So it would be a full rate case. Craig, anything else?

Craig C. Wagstaff

No, sounds good.

Operator

Your next question comes from the line of Timm Schneider from Citigroup.

Timm Schneider - Citigroup Inc, Research Division

Just quick follow-up. I know I think you have about $20 million left on the share repurchase program this year, but how should we think about it? Any potential share repurchase programs beyond that? Is that kind of on the back burner given the 2014 CapEx? I know it was never officially out there but I think you had said there's -- there could be some opportunities around that. So just want to check in on that.

Ronald W. Jibson

Yes. As we indicated, we're going to come in approximately around that $90 million range. As a board, we'll certainly review going forward in using the potential for that stock repurchase in a strategy essentially to keep our share numbers where they were at the time of the restructuring. So I think from a management standpoint of managing the share count, that would be something as a board will address in our next board meeting and look at that going forward. Anything additional, Kevin, on that?

Kevin W. Hadlock

That sounds good, Ron.

Operator

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

Ronald W. Jibson

Great. Again, thank you to all. I know that this has been a tough week. Again, as we indicated at the first with the storm and on the East Coast. Really appreciate all of you taking the time today to be with us. We're open for questions, obviously, in the next few days if there are things we haven't been able to cover. Again, we appreciate your efforts in being with us this morning. We're getting ready to do our Analyst Days in Boston and New York next week. We look forward to seeing many of you there, and we'll be able to drill down on more of our strategy. But again, thanks for taking the time today on I know a difficult day for you. And with that, again, we'll see you soon.

Operator

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

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