The Empire District Electric Management Discusses Q4 2013 Results - Earnings Call Transcript

| About: Empire District (EDE)
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The Empire District Electric (NYSE:EDE) Q4 2013 Earnings Call February 7, 2014 1:00 PM ET


Janet S. Watson - Secretary and Treasurer

Bradley P. Beecher - Chief Executive Officer, President and Director

Laurie A. Delano - Chief Financial Officer and Vice President of Finance


Glen F. Pruitt - Wells Fargo Securities, LLC, Research Division

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Michael Goldenberg - Luminus Management, LLC


Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Empire District Electric Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the conference over to Jan Watson. Please go ahead, ma'am.

Janet S. Watson

Thank you. Good afternoon, and thank you for joining us for Empire's fourth quarter 2013 earnings conference call. Brad Beecher, President and Chief Executive Officer; and Laurie Delano, Vice President and Chief Financial Officer, will discuss our fourth quarter and 2013 results and provide highlights on other key points.

Our press release announcing fourth quarter earnings was issued yesterday afternoon. Press release and a live webcast of this call are available on the Empire website at The replay of the call will be available on the Empire website for 1 year.

Today's discussion will include forward-looking information and the use of non-GAAP financial measures. Slide 2 of the slide deck presents the Safe Harbor statement which accompanies our presentation material. You should also refer to the information in our 2012 10-K, the quarterly 10-Qs and other SEC filings concerning factors that could cause future results to differ from this forward-looking information.

Also, the estimated earnings per share impact of individual items and the presentation of gross margin are non-GAAP presentations, and we would direct you to the fourth quarter earnings press release, for further information on why we feel the non-GAAP presentation is beneficial for investors in understanding our financial results.

And with that, I'll turn the call over to Brad Beecher.

Bradley P. Beecher

Thank you, Jan. Good afternoon, everyone, and welcome.

Today, we will discuss the financial results from the fourth quarter and 12 months ended periods December 31, 2013, as well as other recent events impacting the company.

During their meeting yesterday, the Board declared a quarterly dividend of $0.255 per share, payable March 17, 2014, for shareholders of record as of March 3, 2014. This represents a 4.56% annual yield at yesterday's closing price of $22.35.

As shown on Slide 3, earnings for the year ended December 31, 2013, were $63.4 million, or $1.48 per share, compared to earnings of $55.7 million, or $1.32 per share for 2012.

Slide 3 also illustrates the strong growth in earnings we have experienced over the past several years. Our earnings level reflects our continued investment in infrastructure to reliably serve our customers.

We also received good news late last week that Moody's has upgraded our corporate credit rating from Baa1 -- to Baa1 from Baa2. Moody's upgraded several of our peers to give a more favorable view of the relative credit supportiveness of the U.S. regulatory framework.

In particular, their view includes better cost recovery provisions, reduced regulatory lag and a generally fair and open relationship between utilities and regulators. Moody's specifically cited our constructive regulatory relationship and improved recovery of our operating cost.

We reported fourth quarter 2013 earnings of $15.2 million, or $0.35 per share. This compares to the same period in 2012, when earnings were $9.6 million, or $0.23 per share.

The primary positive earning driver for the quarter was colder-than-normal weather as December 2013, was the second coldest December in the past 10 years. The cold December weather lifted both quarter and annual earnings.

Increased Missouri electric rates, which became effective April 1, 2013, also contributed to the quarter's earnings. Laurie will discuss these driving factors in more detail in her financial comments.

During the fourth quarter, our electric customer count eclipsed our pre-tornado numbers. We ended the year over 400 customers above, the May 2011 count, and our yearly average count for 2013 was up about 900 customers from the 2012 count.

On December 3, 2013, we filed for increased electric rates for our Arkansas customers. We are seeking to increase rates annually by about $2.2 million, or roughly 18%. We last changed rates in Arkansas in April 2011.

I will now turn the call over to Laurie for a discussion of our financial results.

Laurie A. Delano

Thank you, Brad, and good afternoon, everyone. We are very pleased with our fourth quarter and annual results.

As we review our 2013 earnings per share results of $1.48, compared to our 2012 results of $1.32, I'll continue to refer to our webcast presentation slides to talk about the various impacts year-over-year.

As usual, the slides provide a consolidated non-GAAP basic earnings per share reconciliation for the year. Our press release also has this information included. And to remind you, the earnings per share numbers throughout the call are provided on an after-tax estimated basis.

I'll briefly touch on our 2013 fourth quarter results before I discuss our annual results. From a Heating Degree Days perspective, fourth quarter weather was about 10% colder than normal, and more than 20% colder than the 2012 quarter. We estimate that the cold weather added between $0.03 and $0.04 per share to earnings on the electric side of the business for the quarter, when compared to normal weather.

On our Gas segment business, the cold weather added about $0.01 compared to normal. Our fourth quarter results also included lower operating maintenance and depreciation expenses than we had planned. These items combine to push our final earnings per share results over the top of our 2013 annual guidance range.

Slide 4 provides a roll forward of the 2012 fourth quarter earnings per share of $0.23 to the 2013 quarter results of $0.35 per share. When we look at the fourth quarter compared to last year, gross margin, which we define as revenues less fuel and purchase power, was up $0.21. The call-out box on Slide 4 provides a breakdown of the various components of this earnings per share impact on gross margin.

We estimate the impact of the colder weather compared to last year, increased revenue by about $7.7 million, increasing margin by about $0.08 per share, when you combine the Electric and Gas segment impacts.

Increased Missouri customer rates added approximately $5.9 million to revenues, increasing margin about $0.09 per share.

Increasing customer counts, non-volume fuel-related items and other revenues, primarily Southwest Power Pool transmission revenues rounded out the remaining increase to margin during the quarter.

As you can see from the slide, the rate related revenue increase, which positively impacted gross margin, was largely offset by increased operating maintenance, depreciation and amortization and property tax expenses, all of which combined, decreased earnings about $0.10 per share.

Increased AFUDC and other income and deductions added about $0.02 per share. And the dilutive effect of our stock issuance is under our dividend reinvestment plan and stock purchase plan, reduced earnings about a $0.01 during the quarter.

Turning to our annual results. As Brad mentioned earlier, our net income increased $7.7 million, or $0.16 per share. Slide 5 provides a breakdown of the various components that resulted in this year-over-year earnings per share increase. Again, for those of you who don't have our slide presentation, this information is in our press release.

Consolidated gross margin increased $33.5 million over 2012, adding $0.49 per share. The call-out box on Slide 5 provides the estimated components of this increase. The increase in customer rates from our 2013 Missouri rate case effective April 1 of last year, was the primary positive margin driver in 2013.

We estimate these new rates added $24.6 million to revenue, or about $0.37 per share to margin. The impact of the colder weather I discussed earlier, combined with favorable first quarter of 2013 weather and changes in year-over-year summer weather, as well as the other factors added an estimated $3.1 million to revenue, or about $0.04 per share to margin.

Increased customer counts added an estimated $2.7 million year-over-year, increasing margin about $0.03 per share.

As we've previously discussed, the $3.4 million nonrecurring upward adjustment we made in our estimate for unbilled revenues in the third quarter of 2012, negatively impacted revenues when comparing the 2 years, reducing margin by about $0.05 per share.

Electric fuel-related revenues were lower by about $6.1 million compared to 2012. However, these decreased revenues were offset by a corresponding decrease in fuel expense. This item is not indicated in the call-out box, as there is no impact on margin.

Changes in off-system, water and miscellaneous revenues, again, primarily related to SPP transmission revenues and non-volume fuel-related items rounded out the remaining increase in Electric segment revenues, adding a combined $0.06 per share to margin.

Our Gas segment retail sales increased about 34% during 2013 compared to 2012, reflecting the colder weather during our heating season. Gas segment margin increased approximately $3 million, adding about $0.04 per share to margin.

Consolidated operating and maintenance expense increased. This drove a year-over-year earnings per share decrease of about $0.18.

The call-out box on Slide 6 provides a breakdown of this earnings per share impact.

Our Electric segment saw increased operating expenses of about $11.1 million. As you'll recall, the regulatory reversal of a gain on the sale of assets we made as part of our Missouri rate case settlement, reduced earnings per share about $0.02.

As I've discussed on previous calls, the largest individual increase within our transmission operation expenses primarily related to increased SPP charges. This added expense reduced earnings about $0.06 per share.

We also experienced other smaller cost increases and production operations and maintenance, transmission system maintenance, labor and other areas, most of these costs are offsetting the positive margin effect from our increased rates.

Continuing on with the remaining earnings impact illustrated on Slide 6. As we have discussed previously, the loss we recorded for our regulatory disallowance related to construction prudency for our share of ownership of the Iatan plant, reduced earnings $0.03 per share.

Electric depreciation and amortization increased approximately $8.3 million, due to higher levels of plant in service and increased depreciation rates resulting from our April 1 Missouri rate case.

This decreased earnings per share around $0.13.

Increases in property taxes brought earnings down another $0.03 per share. Increased AFUDC added about $0.06 per share to earnings. This increase obviously reflects the ongoing construction of the air quality control system at our Asbury plant, and the dilutive effect of common stock issuances through our stock plans, reduced earnings about $0.02.

At December 31, our retained earnings balance is $67.6 million, and we had about $4 million of short-term debt outstanding at the end of 2013.

At the end of January, that number is at $8 million.

On Slide 7, we have provided the historical and projected net plant in service numbers that reflect our current capital expenditure plan, as well as our historical look at our capital expenditures. These net plant and service numbers include AFUDC, exclude construction work in progress and are net of depreciation.

Our capital expenditure projections for the next 5 years remained unchanged from our previous call. And just to remind you, those projections excluding AFUDC are as follows: $213.7 million in 2014; $175.9 million in 2015; $110.1 million in 2016; $99.2 million in 2017; and $95.9 million in 2018.

The 2014 and 2015 expenditures reflect our ongoing cost for the Asbury environmental upgrade and the conversion of Riverton Unit 12 to a combined cycle.

On this slide, we have also added our net plant levels less deferred taxes to approximate our rate base level. To finance these projects, we expect to issue debt financing in the latter half of 2014, with the potential to issue additional debt or equity financing during 2015.

Right now, we believe this late 2014 debt offering will be in the range of $50 million, but could be subject to change based on expenditure timing and other factors.

Our financing plan is built around maintaining a 50-50 debt and equity capital structure. The addition of internal equity from our dividend reinvestment and stock purchase plans and our continued build of retained earnings, is built into this plan.

On December 13, we filed a $200 million shelf registration statement to replace our $400 million shelf registration that is expiring. The new shelf should carry us through 2016.

We announced in our press release yesterday that we expect our full year 2014 earnings to be within the range of $1.38 to $1.50 per share.

Slide 8 illustrates the primary drivers of our guidance estimate. In developing our guidance, we assume 30-year average weather, modest growth as Joplin continues its rebuilding projects, the Arkansas rate case filing that Brad mentioned earlier, and another quarter of Missouri rates, which will be offset with corresponding -- with a corresponding effect of increased O&M expenses.

Our customer and sales growth have been impacted over the past few years by the May 2011 tornado and the subsequent recovery in rebuilding efforts in the Joplin area.

In addition, we have also experienced changes in customer usage patterns and efficiency trends. These challenges and changes have made it a bit difficult to assess our sales, compared to what we would expect to see on a weather-normalized basis.

As Brad mentioned earlier, we continue to see positive growth in the Joplin area with our customer count. We believe this growth is offsetting any decline in sales caused by energy efficiency trends. This observation has led us to believe, as we have discussed on our previous calls, that our weather-normalized sales have been relatively flat over the past year.

After considering these factors, we still expect to see a modest positive sales growth. We expect this growth to be at a level of less than 1% per year over the next several years. This growth level includes the effect of the portfolio of demand-side management programs, we filed earlier this year, as required by the Missouri Energy Efficiency Investment Act, or MEEIA. The impact of these programs, if fully implemented, is a reduction in sales of between 0.10% to 0.5% over the several years.

As proposed in our MEEIA filing, this sales reduction would be offset by a corresponding revenue rider.

We also expect expenses to increase in 2014 over the 2013 level, primarily due to increases in transmission operations, property tax and labor expense. Other factors that may impact earnings, include variations in customer growth and usage projections, including the ongoing redevelopment in the Joplin area, and as always, unanticipated or unplanned events that may impact operating and maintenance cost.

I'll now turn the discussion back to Brad.

Bradley P. Beecher

Thank you, Laurie. On the Missouri legislative front, we are supporting Missouri Legislative Solution, Senate Bill 702, to help reduce the impact of regulatory lag.

In fact, Senate Bill 702, was voted out of the Senate Utilities Committee earlier this week. This solution would allow Empire and Kansas City Power & Light to defer costs associated with Power Pool assess transmission project and Missouri property taxes for recovery in future rate cases.

Empire customers would not be charged for these costs until plants is in service and costs are approved by the Missouri Public Service Commission and a general rate case proceeding.

We estimate regulatory lag was about $3 million for property taxes in 2013. We estimate regulatory lag will be $2 million to $3 million in net transmission costs, and about $4 million to $4.5 million for property taxes in 2014.

Work continues on several major construction projects in the area, including 2 substations to serve the Joplin growth. First, the Kodiak sub located at Crossroads Industrial Park, is on schedule to be completed this month. It is needed to serve growth in the Industrial Park including the new $80 million Blue Buffalo pet food facility. The Blue Buffalo facility stands about 425,000 square feet and is expected to employ about 150 workers.

Second, our Silver Creek sub, that will serve Southern Joplin, including the new Mercy Hospital and other medical support facilities is underway. The substation is expected to be operational in May, in time to supply the facilities needs as construction is completed and the testing phase begins. Mercy is shooting for a March 2015 opening.

Our Asbury air quality control system project is progressing on time for completion in early 2015. We have spent $83.6 million on the project to-date. We continue to estimate this project will complete -- be completed at a cost of between $112 million and $130 million.

As we announced in our last call, ground has been broken at our Riverton power plant site for the conversion of Unit 12 from a natural gas simple cycle unit to a combined cycle facility. Preliminary work is underway with completion slated for 2016 at a cost of $165 million to $175 million.

We have spent $13.6 million to date on this project, mainly on pre-engineering and site preparation.

School resumed after the holidays in new buildings for 3 Joplin Schools: Irving Elementary, Soaring Heights Elementary and East Middle School. The new schools are designed with large open multi-purpose areas, project rooms for messy projects, easily visible classrooms, safe rooms that serve the community, fiber-optic technology throughout the facilities and brain friendly colors.

Progress also continues on the Joplin High School and Franklin Technical Center (sic) [Franklin Technology Center], which is scheduled to be ready for opening day of school in August.

Land has been acquired for 150 units senior transitional housing project and a library project.

Prospects for a new grocery store in the 20th Street area are still being sought. And Commerce Bank, as announced, will construct a new 12,500 square foot bank headquarters at 20th and Connecticut.

We continue to see numerous apartment complexes under construction in the tornado area. The Joplin Area Chamber of Commerce now reports that 530 businesses damaged during -- were damaged or destroyed in the May 22, 2011 tornado and 500 are back and operating.

In addition, 140 new businesses have come to Joplin since the tornado. Many are small retailers and restaurants, but overall, these companies added about 500 new full time jobs and more than 300 part-time jobs to the Joplin area.

The city of Joplin also recently announced that 90% of the homes damaged or destroyed have been rebuilt or repaired, or have permits to rebuild.

Overall, we continue to see good progress in Joplin's recovery.

I will now turn the call back to the operator for your questions. Operator, I have now turn the call back for your questions.

Question-and-Answer Session


[Operator Instructions] And our first question is from Glen Pruitt with Wells Fargo.

Glen F. Pruitt - Wells Fargo Securities, LLC, Research Division

First of all, so I have 2 questions. The first one is, looking at your CapEx guidance, looks like it should tail off in the '16 to '18 timeframe kind of get to the point where your depreciation exceeds your spend then. Can you give me color on any incremental possible projects that you have down the line? Or do you guys have anything on your viewfinder?

Laurie A. Delano

I think we're still assessing that what we're going to do in those out years with growth. And Glen, actually, the way we're kind of looking at that right now is that, that tail off there and we're certainly cognizant of needing to keep our expenditures at, at least the depreciation level. That gives our customers a little bit of a break out into the future from the increased rates that we've been hitting them pretty hard with. But in our staff, our management team continues to look for opportunities for growth, but we don't have anything definitive laid in there at this time.

Glen F. Pruitt - Wells Fargo Securities, LLC, Research Division

And one other quick follow-up question not related. Your stock issue program that you currently have, the $7.5 million, how long do you intend to keep that going?

Laurie A. Delano

We just -- we don't have anything in progress except our normal dividend reinvestment plan and stock purchase plans. I don't know if you're referring to the old variable plan that we had? Are you referring to our dividend reinvestment plans?

Glen F. Pruitt - Wells Fargo Securities, LLC, Research Division

Right. Yes, yes, the...

Laurie A. Delano


Bradley P. Beecher

We would have no...

Laurie A. Delano


Bradley P. Beecher

No plans to...

Laurie A. Delano

To change that.

Bradley P. Beecher

To change that dividend reinvestment program.


Our next question is from Julien Dumoulin-Smith with UBS.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

So first quick question here, you talked about the -- having some sales growth here in your '14 guidance. Could you talk to that a little bit more articularly just in terms exactly what you're expecting? And what's driving that change? Again, I know you went through sort of by project, but is there one of those that we should be tracking here in terms of time line or what have you?

Bradley P. Beecher

Julien, we've got, on a weather-normalized basis, less than 1% of sales growth built into our 2014 forecast. And it really is no one project, it's all these schools that are coming on, it's the Mercy Hospital continuing to be complete, it's all the apartment complexes that are being built. Again, being offset somewhat by some energy efficiency trends through the rest of our business.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Got you. And could you just walk through a little bit more on the increases in property tax year-on-year? I mean, just if you think about O&M in '14, you've talked about that being a headwind, just generally speaking. Could you talk to the, exquisitely, the increases in transmission expenses in property taxes?

Laurie A. Delano

Well. Just to maybe give a little bit more color about the trend. I mean, if you think about '14, first of all, we have another quarter of rates coming in there and really kind of another quarter of increased expenses that match those rates. And then you have the incremental expenses over and above what we're including in rates, which as Brad articulated, we think was about a $3 million drag on property taxes in '13, and that's going to increase by another $1 million, $1.5 million in '14. And then that extra amount that we're going to have in this -- for the transmission cost in the Southwest Power Pool, which he articulated in his comments. Other than that, we haven't really made public or talked about any other detail. But -- and then we've got labor cost that are also coming into play from just our union contracts, a normal percentage increases in labor. So those are the, really, the 3 things that are driving that.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Great, excellent. Is there an overall percentage change that you guys are thinking about? If you would aggregate all those factors together, and clearly x of cost that are recoverable, just as how you think about unrecoverable cost, what the O&M inflation would be year-on-year?

Laurie A. Delano

I think we've incorporated that into our guidance. We don't really have a specific percentage.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Got you. All right, excellent. And then, could you speak really, quickly around those, if possible, the legislation, if you will? Specifically, just to make sure, I understand it, is this a deferral mechanism that we're talking about here? And it would be trued up in the next rate case, is that the way to think about the mechanics of it?

Bradley P. Beecher

Yes, Julien, that's exactly how you should think about it. Today, it is very tightly defined to be only property tax, only transmission. And today, as the legislation exists, it's only for companies that have less than 1 million customers, which means it would exclude Ameren. Ameren already recovers their transition cost through their Fuel Adjustment Clause. But if the way -- what the legislation would do, would enable us to hang up as a regulatory asset on our balance sheet, costs over and above what were included on our rates and then the Commission could look at those cost and the next rate case and then amortize them over the next few years. It's still very early in the legislative process. There's still, I think, a lot of changes that could come to this bill relating to property tax, relating to transmission. There's yet another piece of legislation that would allow us to hang up depreciation on new plant as it goes into service that is still being bandied around. And so, there's still a lot of things that could happen here surrounding this legislation. But clearly, we're trying to address regulatory lag in Missouri. And it's important to all 3 of the electric utilities in Missouri.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Got you. And just a quick clarification on that. This was last year, just if you look at the bill that was contemplated has a variety of other things attached to it, ultimately at the end of the day. Is that your expectation that this thing might be altered, if you will, for lack of a better description and has more adders tacked in there? Do you think it's likely at this thing remains fairly Queen in terms of the ultimate goal and the effects of the legislation?

Bradley P. Beecher

So my personal expectation is, everything that goes through a legislative processes is hard fought and hard-won. And is it goes to the Senate, it goes through the Senate, it could change as it finally gets pushed to the house, it could change if it gets pushed to a conference committee, it could change. So there are a lot of competing interest from both consumers and utilities that could alter the look of this bill by the time I would get through the entire process.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Got you. And then lastly, if you could talk quickly about the regulatory outlook. I mean, if there is an ability -- if this fails to go back to the commission for perhaps an accounting order to recover some of these costs or defer them on a minimum?

Bradley P. Beecher

As you probably know, Kansas City Power & Light has requested an AAO surrounding some of these transmission costs. The commission has not issued an order in that case yet, but that could be forthcoming, and could be an avenue that we could pursue. Ameren has been recovering their transmission costs through their Fuel Adjustment Clause. That was a appealed through the judicial system. And my understanding is that, as of yesterday, the Supreme Court in Missouri declined to hear that appeal, so that should improve our likelihood of being able to recover our transmission costs through the Fuel Adjustment Clause, when we finally -- when we file the rate case here later in 2014.


Our next question is from Michael Goldenberg with Luminus Management.

Michael Goldenberg - Luminus Management, LLC

I have a question on your sales. Obviously, December was very strong and so was January. Can you explain -- maybe going a little more detail how much of the guidance was impacted by strong January? And how you think strong January affecting the rest of the year?

Laurie A. Delano

Yes. We wouldn't think that it really had much impact. You had a strong -- are you talking about January of last year?

Michael Goldenberg - Luminus Management, LLC

No. January of this year.

Laurie A. Delano

No, no, we didn't lay that into our guidance because we are using a full year of normal weather for that.

Michael Goldenberg - Luminus Management, LLC

But was January strong versus expectations?

Bradley P. Beecher

It was significantly colder in Missouri than normal, so we haven't got January books closed yet. So I couldn't tell you that what it is.

Laurie A. Delano


Bradley P. Beecher

But it was significantly colder in Missouri and the Midwest than normal.

Michael Goldenberg - Luminus Management, LLC

But is most of that benefit felt on the Gas side or somewhere on the Electric as well?

Bradley P. Beecher

I would think you would think about it much like our fourth quarter results are -- we had more impact from weather on the Electric side than on the Gas, on a fair basis.

Michael Goldenberg - Luminus Management, LLC

Is that because of more homes are electric heated or is some of...

Bradley P. Beecher

That's correct. That's correct.

Michael Goldenberg - Luminus Management, LLC

Is that true for all of Midwest?

Bradley P. Beecher

No. It's a little bit unique to our service territory. There's really only one pipeline that serves Southwest Missouri, a pipeline called Southern Star Central, and it runs up Interstate 44, and so there are a lot of communities that are either served by propane or electric heat. And as you know, propane costs have been high. And so -- but there is a lot of electric heat here that makes us a little bit unique vis-a-vis some of our counterparts in the rest of Missouri.

Michael Goldenberg - Luminus Management, LLC

So it's very Empire District specific, not even Missouri specific?

Bradley P. Beecher

I think so.

Laurie A. Delano

And keep in mind, our Gas segment is small when you look at -- we only have 40-some thousand customers. So if you're comparing the impact on the Gas segment versus the Electric segment, obviously, you have to keep that in mind.

Michael Goldenberg - Luminus Management, LLC

Got you. And then, as far as Hospital coming back on line, I think you said, it's 2015. But is that coming back in stages? You -- I think you mentioned that, there the Hospital is going to be completed in 2015, but is it...

Bradley P. Beecher

I think there's actually a picture of the hospital in our slides. Yes. There is, on Page 9 of our slides. And as you can see, it is completely enclosed. They're still heating at this point with temporary heat. But there is a lot of lights on out there. So we are starting to see some of the sales back, impacts of the lighting. But inside of that building shell you see there, there isn't much finished yet. So it will rarely ramp-up as they really start getting real heat, real lights, real medical equipment operating. So -- But we are starting, just now, starting to see some of the impacts of the lighting and auxiliary load.

Michael Goldenberg - Luminus Management, LLC

So it's going to happen gradually between now and sometime in '15?

Bradley P. Beecher

That would be my expectation.

Michael Goldenberg - Luminus Management, LLC

And you've embedded our expectation of that coming back gradually into your guidance, megawatt hours sales increase?

Bradley P. Beecher

We have.

Michael Goldenberg - Luminus Management, LLC

Got it. Okay. And I was just wondering if you had any updates on your financing plans, or everything is as previously stated?

Laurie A. Delano

Yes. As I mentioned in the call, I mean, our plan right now is to issue probably in the neighborhood of $50 million of debt financing toward the end of this year, and then look at what we would need beyond that and what mix of debt and equity that would need to be. So that's where we are at this point in time.

Michael Goldenberg - Luminus Management, LLC

So are you saying no equity in 2015 -- '14? Or you're not saying that?

Laurie A. Delano

That is our plan right now to issue debt only in '14. And what we're doing there is we're looking at how we're building equity internally, with retained earnings and our stock purchase plans and targeting that 50-50 capital structure as we move forward.


[Operator Instructions] And I'm seeing no questions at the moment. Please continue with any closing remarks.

Bradley P. Beecher

Thank you. Empire remains a high quality, pure play regulated electric and natural gas utility. We manage a favorable energy supply portfolio consisting of reliable, diverse, low-cost regulated assets. Our experienced management team also works to ensure constructive regulatory relationships with regulators at both the state and federal level.

We continue our low risk growth plan and maintain our commitment to renewable energy and reduced emissions.

Before we close, I'd remind you that Laurie and I will be attending UBS's 2014 Natural Gas and Electric Utilities Conference in Boston on March 4.

Thank you for joining us today. Enjoy the weekend.


Ladies and gentlemen, that does conclude the conference call for today. Thanks, again, for your participation. You may now disconnect.

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