MDU Resources' (MDU) CEO Dave Goodin Hosts 2017 Analyst Seminar Call (Transcript)

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MDU Resources Group, Inc. (NYSE:MDU) 2017 Analyst Seminar Call March 20, 2017 9:00 AM ET

Executives

Dave Goodin - President and Chief Executive Officer

Dave Barney - President and Chief Executive Officer, Knife River Corporation

Jeff Thiede - President and Chief Executive Officer, MDU Construction Services Group

Nicole Kivisto - President and Chief Executive Officer, Montana-Dakota Utilities, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Gas

Martin Fritz - President and Chief Executive Officer, WBI Energy

Doran Schwartz - Vice President and Chief Financial Officer

Analysts

Chris Ellinghaus - Williams Capital

Paul Ridzon - KeyBanc

Operator

Good morning. My name is Brent and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2017 Analyst Seminar Conference Call. [Operator Instructions] This call will be available for replay beginning at 1:00 p.m. Eastern today through 11:59 p.m. Eastern on April 3. The conference ID number for the replay is 88456524. The number to dial for the replay is 1855-859-2056 or 1404-537-3406.

I would now like to turn the conference over to Dave Goodin, President and Chief Executive Officer of MDU Resources Group. Thank you. Mr. Goodin, you may begin your conference.

Dave Goodin

Great. Thank you and good morning to everyone. We appreciate everybody making some time to listen in to our Analyst Day call. This is a change in format from prior years. We modified given that last Wednesday was our planned date to be at the stock exchange and have our team there and do some live Q&A. And then in lieu of that, we felt we would do this as a brief follow-up to that. Again, this will be available for playback as well.

The format for the day will be I will give some opening remarks and then as I will hand this off to each of our four company business Presidents, starting with Dave Barney. Dave is the President and CEO of Knife River. His comments will follow mine. Then immediately after that, we will move on to Jeff Thiede. He is the President and CEO of MDU Construction Services Group. They both comprise what would be considered our construction segment. And then after Jeff, then we move on to Nicole Kivisto. Nicole is President and CEO of Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas, along with Intermountain Gas. And then after Nicole’s comments, we will move then on to Martin Fritz, who is the President and CEO of WBI Energy. Then after that, we will move with Doran Schwartz, our Vice President and CFO here at the MDU Resources Corporate Group. And then also joining us today is Jason Vollmer, Vice President, Chief Accounting Officer and Treasurer at MDU Resources. We would have a format today that would include at the conclusion of each speaker’s comments a Q&A session, similar to what we do at a quarterly earnings call. And so please, if you have questions, we would certainly invite and that’s the primary purpose of having this interactive webinar here today. Please ask your questions of each of the business heads, along with either Doran or myself. And so this will also be available for playback, as I mentioned, if you are not able to catch us live here today.

I went through the lineup and again to stay coordinated, our slides are on our website and we will try as we go throughout the day to note which slide that we are kind of giving the presentation from. And so I will move then on to Slide 3 in the deck. Our forward-looking statements, I’m sure many of you are familiar with that. Again, this is intended under the context of the Section 21E of the Securities and Exchange Act.

When I think about MDU Resources, I really stop and think our model at MDU Resources is building a strong America. We have two lines of business and each plays a major role in supporting our nation’s infrastructure. On the one side, we have regulated energy delivery where we have one of the fastest growing utilities in the country. And we couple that with a pipeline that overlays the Bakken that has North America’s largest storage asset. And on the other side is our construction businesses where we are the fifth largest sand and gravel producer in the country and we are coming off back-to-back years of record earnings. We couple this also with the Construction Service Group, which tends to wrap around the electrical industry both from inside and outside and supplying materials. So, we take together our two business lines we think puts us in a good position to contribute to America’s infrastructure build-out and we are optimistic about the years to come. When I think about our vision statement, I am on Slide 4, it talks about our primary stakeholders that we view how do we create superior shareholder value and at the same time, be a supplier of choice for our customers while also being a safe and great place to work enhancing employee’s well-being as well.

Slide 5 would be a brief recap of 2016. Really, the focus today will be forward-looking 2017 and beyond. But I think it’s important to see the context of how we are as an organization coming off the year we had last year. I would say it was a very solid year for MDU Resources. Thinking about our EPS growth from ‘15 to ‘16, we had a $1.19 in 2016 compared to $0.90 in 2015 so far as continuing operations grow. In our Construction Materials and Services business segment, we had a total of $136.6 million, actually, a 21% increase from the prior year. And on a combined basis that would be an all-time record materials that have, again, back-to-back record years. And I think as important as anything is coming off ending the year on a strong position from a backlog perspective, up about 10% from the prior year. I think construction services, while they had record years in 2013, 2014, we saw a reset in 2015, but we rebounded nicely from that reset of 2015 and with increasing earnings about 43% here in 2016 and so again, combined $136.6 million in our construction lines of business.

In the regulated energy delivery, we achieved $92.7 million. Again, this will be an increase of 27% over the prior year. This came primarily from our electric and natural gas LDC company, where earnings increased 16% year-over-year. And Nicole will help explain some of the main reasons of which one of the key ones there would be regulatory activity to recover record investments we have made over the prior 4 years. In our pipeline and midstream business, we didn’t experience a very nice increase in the use of our storage facilities. I mentioned we have the North America’s largest storage field there in Eastern Montana. I think it’s got a very nice strategic fit, particularly with the Bakken area and we found were some days of spreads that were able to really provide some nice services to those looking to park gas for a period of time.

So then, if I turn to Slide 6 and look at what I just mentioned actually in graph form. You see our earnings did increase ‘15 to ‘16, both on a total basis, continuing operations and then again, on an EPS. So, we saw about 32% growth year-over-year.

Turning then to Slide 7, you get an idea of the total shareholder return last year, certainly, a strong year. Earnings wise did translate into a strong total shareholder return of just over 62% for 2016. And then you can see the comparisons there to both indices, the S&P 500 and along with the Mid Cap 400.

So then I am going to turn to on more of a forward-looking. Again really, I think more of the purpose for today is give a feel for how we are thinking about each of the businesses. I am on now Slide 8. This – you will actually hear more information from each of the business heads. My purpose here would necessarily to take any of their funder, but more T&F, if you will and they will provide more detail in each of these. Utility, we are projecting right at a 4% rate base growth on a CAGR basis over the next 5 years. It’s coming off, actually, a 12% CAGR that we have experienced a great base growth over the last 5 years at the utility. This is really driven by $1.2 billion of capital investment that Nicole will walk through some of those major projects associated over the next 5-year time horizon. You can see some of those are inclusive of, for instance, MBP project in MISO. That’s that 160-mile, 345 line that goes from kind of the eastern edge of our transmission system down into South Dakota that’s under construction, as we speak. We are also seeing about 1% to 2% customer growth across our eight-state footprint that our properties further to the West are experiencing growth in excess of that and other areas slightly under that, again averaging between 1% and 2%. And also, pretty key as far as our generation aspect of our utility is we will be completing our integrated resource plan here in 2017 mid-year, plan to file that. That may also provide some investment opportunities depending on the ultimate mix that we view that from a renewable gas, along with our existing coal-fired fleet. And then also we did announce here right at the end of the year or at the first of the year, expansion of our Thunder Spirit 2 project. That’s a project that we have entered into with a third-party to do the construction, but then we have the option to purchase much in line with actually, Thunder Spirit 1 that is currently in our rate base.

Moving on into the pipeline, certainly I will say it’s a year of returning to focus. Martin and his team have done a very nice job of doing some exits that we have had in that business so far as some of the commodity exposure that we had relative to a refinery. We also have a $387 million 5-year organic capital program. He will talk about some of the expansions such as we note there the Valley Expansion Project is kind of the midst of a surveying and we do target a construction period in 2018, ultimately with about a November 1, 2018 in line service date. And then they continue to find wins in the Bakken. We note those with the second bullet there so far as, I will say adding compression or turning pipe over existing rights of way that add incremental volume throughput, primarily in that Tier 1 acreage in the Bakken area itself.

Turning then to Slide 9, let’s talk about our construction businesses that again, we are very bullish on, as we think about the nation’s focus on infrastructure. We started the year with a record backlog at our construction materials group. Dave Barney will visit about that a little bit as we think about the $538 million that was in backlog at the end of the year. The FAST Act that we know is put into law here in November of 2015. We expect that not much anticipation from that in 2016. That turned out to be correct. We do start to see some of that and expect some of that starting now in 2017 and beyond. Certainly, that gets a trend there is very positive. We also think about again, the conversation that’s been had more recently about our nation’s infrastructure, I think the American Society of Civil Engineers grade us overall at a D+. And so we think it’s an – while it’s not something to be proud of, we are very proud of the 1 billion tons of aggregate that we have within the Knife River Group that will, I think help to improve upon our grade over time. And certainly there is a strong bidding environment in that business as we are in about 15 different Western states and many different markets.

Our Construction Services Group is – had again a nice rebound in 2016 from an earnings perspective. They also are starting the year in a good position from a backlog. We note there about $475 million of backlog for Jeff and his team. It’s a good bidding environment. We believe primarily also, we are looking at ways which we can further our abilities through organic or possibly some acquisition opportunities. In particular last year, our third bullet there talks about other opportunities in renewable energy markets. Again, we completed probably one of the largest community-based solar projects just outside of Las Vegas last year, where Jeff and his team engineered, procured and constructed the 80 acre, 51,000 panel location and then we ultimately sold that to a third-party.

Moving on to Slide 10, you get a feel where that $1.9 billion is spread throughout the next 5 years. You can see a good amount of that, in fact almost 85% was targeted to the regulated lines of business. And again, the remainder would be on the construction side. I would note that we have added a layer and we talked about this since announcing it back in November of ‘16, the $300 million of growth capital. And that is really not allocated to any particular business, but we do see a resumption to M&A activity, particularly in our construction businesses. Again, that’s really how we grew those businesses, Knife River and Dave and his team about 75 acquisitions over about a 20-year timeframe and then Jeff and his team, about 25 acquisitions over a similar timeframe to form the businesses that they are in today. We see a resumption of that. And looking for other opportunities, you might say, in the pipeline space that might fit, I will say add-ons to our current footprint.

That really provides a bit of an overview. I didn’t want to take much time as to, I know folks want to get right into the details with each of the business heads. Again, we will – I have some Q&A at the conclusion of each of the speakers. And so please, we just invite that. Right now, I will turn this over to Dave Barney. And Dave will give an opportunity to talk about Knife River and the construction material opportunities that we see. Dave?

Dave Barney

Thanks Dave. Good morning. Like Dave said, I am President of Knife River. And I am happy to talk to you a little bit about our company today. I have been with Knife River for 31 years and we have had a lot of good years. But this is really a good time for us. We are coming off back-to-back record earning years. We have got the FAST Act out there giving spending certainty to states. And we have got an administration that’s planning on infrastructure improvements. So this is a great time. It’s also our 100th year business at Knife River and the 25th year that we have been in the construction materials business. We have moved into the construction business in 1992 and we are the fifth largest sand and gravel producer in the country. We have over 1 billion tons of aggregate reserves, which is the cornerstone of our business. We are vertically integrated construction company, which gives us advantages and it starts with our talented team in our aggregate reserves. We have operations in 15 states across the Central U.S., including Alaska and Hawaii. And at the peak of construction season, we have about 5,000 team members working for us. This year, we are expected to do about $1.85 billion to $1.95 billion in revenue.

Next Slide 13, our strategy has been working pretty well. So we plan to stay with it. The first bullet you see here is our core values, people, safety, quality and environmental. We have good people or we wouldn’t be achieving record earnings. We are a safety leader in our industry, which attracts good people and helps us land important jobs. We have a good quality program, which focuses on good people or which focuses on continuous improvement and repeatable results. Our goal was always to get back to do more work and not rework and we are committed to complying with all environmental regulations. We are focused on delivering the solid ROI for MDU and providing strong cash returns. Even at the bottom of the recession, our company never lost money. And as I said earlier, our vertical integration is a very important part over – we have our aggregates and ready-mix and asphalt and construction and precast and sackings and the benefit margins – that benefits margins all the way down the line. It gives us some advantage over our competition. Lastly, on our strategy, we are looking to grow Knife River. We have done quite a bit of organic growth over the last 4 years and now we are looking to do – move more into M&A side of that.

Slide 14, on the material side, we have the aggregates, obviously and asphalt, building materials, cement, liquid asphalt, prestress/precast, concrete and ready-mix concrete. On the construction side, we do work as a general contractor, subcontractor. We do aggregate lay-down, asphalt paving, construction, site development, bridges and we have marine construction company in Long Beach, California.

Next Slide 16, our strengths, I have talked about this. Our biggest strength is our people. We have a talented team working for us, which gives us an advantage and really drives our success. We have the right people. We continue to recruit aggressively. After that, our aggregates and our vertical integrations are key to us. And I have talked about that. One thing I haven’t talked about yet is our geographic diversity and how we share resources between our regions, which is another big advantage for us. We are in several different markets and in common for some of them to be down while others are up and we have the ability to move people, equipment and plants to anywhere we can get good returns.

Next, Slide 17. Some highlights from last year, we had record earnings of $102.7 million, recorded a benefit from a multiemployer pension plan. And even without that, we still had record earnings of $96 million. We saw good volumes and margins last year and had growth within each of our geographic regions. It was a good year. We entered with record year in backlog. Next slide, here you can see our earnings. We had a 33% compounded annual growth rate from 2012 to ‘16 and again, record years in ‘15 and ‘16.

Next slide. Our outlook for ‘17, we have some good momentum and we need the weather to cooperate. We have record backlog to start things on out and we will continue to build on that backlog as a lot of work out there to bid. Low field costs give us a boost and we continue to see increases in construction spending. The Highway Bill is having a positive impact on our industry, which we are seeing in our markets. And we are excited about the new administration’s plans. The weather slowed us down a little bit in January and February, but the work is out there and I am optimistic for a good year this year.

Thank you. And I’ll take questions.

Dave Goodin

Yes. So now we would like to open the lines up. Maybe Brent, turn it back to you so far as coordinating the Q&A, but we will provide an opportunity for those that might have questions for Dave Barney and Knife River.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Chris Ellinghaus with Williams Capital.

Chris Ellinghaus

Hi, Dave. How are you?

Dave Barney

Good, Chris.

Chris Ellinghaus

Could you give us an update you are maybe a little bit cautious about the bidding season on the quarter call. Can you give us a little update on what you are seeing there?

Dave Barney

Firstly, I have seen a lot of work out there to bid right now, Chris. Obviously, nothing from the new administration on that we expect to see in 2018, but our – most of our areas have its very strong bid schedule. We are seeing a little – few more bidders out there and we would like to see, but we picked up our share of the work and it’s looking fairly positive for ‘17.

Chris Ellinghaus

Okay. And you were talking about M&A, what is your focus? Is it just expansion of existing geography? Is it new states? What is your general thought process on M&A at the moment?

Dave Barney

Yes, you hit it the first time. We want to expand on our existing footprint. So, I talked about that vertical integration, where we can move more of our own aggregate. So, we want to build within our existing footprints unless a really, really great deal came along in another state we are not in. We are probably not going to move to another state, but we are concentrating now on growing within our existing footprints.

Chris Ellinghaus

Okay, thank you.

Operator

[Operator Instructions] We have no further questions in queue at this time.

Dave Goodin

Great. Well, thank you, Dave. Now we are going to turn to Jeff Thiede and the Construction Services Group. Again, Jeff is the President and CEO of Construction Services role he has had for about 4 years now and been with the company a number of years certainly before that. Turn it over to you, Jeff.

Jeff Thiede

Thanks a lot, David. Good morning, everybody. As you can see from Slide 22 how our business lines are organized into the outside, inside, industrial and also equipment and supply. You can see that our businesses diversified and our companies compete for work across the country. We are not in every market, but we do like the markets where we are. Our companies communicate better than ever amongst each other, sharing work leads, opportunities, best practices whether it’s safety or production-related, lessons learned, best-known methods and sometimes even employees who can bring particular expertise and resources to a particular project opportunity. Last year in Engineering News-Record’s 2016 publication, we were ranked 13th on their Top 600 Specialty Contractors list.

On Slide 23, this outlines our strategy, which we call go and grow. And our priorities are to expand your footprint in your existing market, dominate the market through being the best provider at value-added services. We also have demonstrated that we have expanded our renewable expertise. One of our Las Vegas companies, Bombard Electric, completed one of the largest community solar projects for Valley Electric Association led by Bill Connors and Bo Balzar, our team, finance, designed, built and eventually sold this asset, which was built on an 80-acre site. This is an example of responding to an opportunity in the market, providing a project for our customer and also shows the strength of our talented workforce, our management, our valued field, our technical staff, our production professionals, all who make it happen for our company.

On Slide 24 shows a list of our outside companies. These companies perform work in the transmission, distribution, substation, gas and electric, communications, traffic signal and also water storm and sewer utilities.

Slide 25 shows a list of our inside companies. And we work in about every market providing electrical work, fire protection work and mechanical services, whether it’s design build, design assist. We provide preconstruction, construction and even service for our customers for end-to-end value-added services for our customers. We are in the healthcare market. We have four companies in the Las Vegas area. We’ve built stadiums and arenas. We have worked on microelectronics facilities. As I have mentioned before, renewables.

Slide 26 identifies our type of work that we do for our customers in the petrochemical industry. We started with USI Industrial as a turnaround group. We built a strong reputation and credibility with our customer and we were given opportunities to show what we can do with capital projects. We have been very successful with those type of projects. And also, we have created a good group of people to provide maintenance work. Wagner Industrial Electric is also another part of our business that provides work in refineries, but also specialized in the automotive work and looking to get its first mission-critical project.

On Slide 27, Wagner Smith Equipment, you see an image of a building we completed about 1.5 year ago. We expanded our capacity for manufacturing. Our President in that back group, about 3 years or 4 years ago, came up with a strategy to be able to provide service on one-day delivery throughout the country to be able to meet the demand and provide the best equipment in the industry.

Slide 28 shows our safety results. It’s all about results. And through the efforts of our leadership and especially, the field we have been able to reduce our injury rates in our three lagging indicators. We are not satisfied until we get to zero. But you can see from these results, we have shown progress with last year’s. Our second critical success factor is financial success. And on Slide 29, we have improved our preconstruction delivery. We have brought onboard with the design team the general contractor and many projects that we secure. We provide in-depth value analysis, constructability reviews. And we effectively use technology to be able to provide 3D modeling, also adding a time element and a cost element to bring us to 5D modeling for a project. This helps with our planning. It also gives us time to be able to provide offsite prefabrication, which improve safety and quality and also reduces our labor cost for a particular project. In addition, as a national contractor, our procurement and buying power helps reduce costs, lower the cost of our installation and delivery for our customers, making us more competitive.

Our third critical success factor is employee satisfaction on Slide 30. We have invested into project management training. We have subject matter experts within our company, throughout our company help develop a 22-module course that not only teaches technical skills, but also soft skills. We have seen a demand from our company presidents on adding to this project management training and we develop senior leadership training, provides 360-degree reviews and also interaction, peer review and then in addition to that, some follow-up training. We think this helps strengthen our processes, but also shows an interest in our individuals and our talent and is helping us deploy our services for our customers.

On Slide 31, it shows the backlog of last – since 2008. We would like the bidding market. We would like what we have seen. And we think that 2017 and ‘18 will be very good years based upon what we are seeing in the bidding environment. Slide 32 is our summary, which is our people are outstanding. We put together a plan with our companies. Each individual company provides a strategic plan. We built a good track record and also our success, we are always looking to get better.

So with that, I will open it up for questions.

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Chris Ellinghaus with Williams Capital.

Chris Ellinghaus

Good morning Jeff.

Jeff Thiede

Good morning Chris.

Chris Ellinghaus

Can you give us a little color on your bidding environment right now?

Jeff Thiede

Yes, we are seeing some larger projects where our customers are looking for companies that have strong safety and can provide services on the front end, so they can enter into these projects quicker. And we like the mission-critical markets. We are seeing a bounce back in healthcare. We are still hoping for improvement in Las Vegas for the hospitality and gaming. We have seen some activity, but we have been waiting for two or three mega projects for the last couple of years. There is an arena expected down in Las Vegas as well. Our petrochemical industrial group is seeing continued strong activity. So just about all markets, we see good bidding activity and more receptiveness to bringing a smaller group of contractors together to compete on a price and non-price value added evaluation. And we think we compete very well in that setting.

Chris Ellinghaus

If there is a new Vegas Stadium, I assume you guys would be interested in that work?

Jeff Thiede

Absolutely.

Chris Ellinghaus

Can you give us a little color on what’s currently sort of the outlook for the equipment sales and rental for that part of the business?

Jeff Thiede

Yes. We have seen – they have been a little slow. And we are well-positioned with our increased manufacturing. So we track our utilization. We track our rentals versus our sales. We have seen some customers converting rentals into sales. We think our customers have a lot of equipment in their yards. As that work starts to pick up, not only will their equipment be put to use, but then they will have the need to be able to rent and buy equipment from Wagner Smith Equipment. We do see an up-tick in the transmission, distribution substation market in ‘17 and ‘18.

Chris Ellinghaus

So was the sort of the weakness in the last couple of years more of just a cycle in terms of what they had purchased in the prior years and building up some of the transmission infrastructure that we have just gotten to a point where they had adequate equipment for their level of construction?

Jeff Thiede

A lot of our customers have quite a bit of equipment. I think when the work slowed down, they reorganize and reassess on what they have and what they needed and took more control. And I think we are seeing now that, that equipment is being put to use. We are seeing more activity and bidding activity from our sales team. And we are expecting a better year from the equipment and supply group.

Chris Ellinghaus

Okay. And what big projects in Las Vegas as far as gaming goes no one that seems to be moving slowly, but what big gaming projects are you guys looking for?

Jeff Thiede

We are looking at the Resorts World project, which we have been tracking for over 4 years. And we are seeing some activity. And we are also tracking a lawn project, which has slowed down and they are looking for local financing partners. Those are the two major projects. There is also a lot of remodels that we are capturing as facilities start to update.

Chris Ellinghaus

There is a lot going on down in the Fremont area, are there going to be more remodels to those hotels that would potentially be good customers?

Jeff Thiede

Yes, there is always a renovation and cycling of updating. It’s been slower in the last several years, but we are very well-positioned with the bio protection, mechanical, the electrical, of course and also our excavation utility group.

Chris Ellinghaus

Okay. Thanks for the color Jeff.

Jeff Thiede

Thank you.

Operator

[Operator Instructions] We have no further questions at this time.

Jeff Thiede

Thank you.

Dave Goodin

Thank you, Jeff. Then we will move on to the regulated side of our businesses, starting with Nicole Kivisto. Again, Nicole is the President and CEO of Montana-Dakota, Great Plains, Cascade and Intermountain Gas. Nicole?

Nicole Kivisto

Alright. Thank you, Dave. I would like to add my welcome to the rest of the teams and I appreciate your all interest in MDU Resources. I am going to start with Slide 35 here, which gives an overview of our utility group. You can see we operate in 8 states. And between our electric and gas systems, we have 13 jurisdictions that are serving 448 communities and currently have 1,066,000 customers. When you break that down between electric and gas, we have got 143,000 electric customers and 923,000 gas customers. Our largest concentration of customers is in Idaho. However, our largest concentration of rate base is in North Dakota, considering the number of customers and our electric operations located there. We do own 758 megawatts of own generation. And in 2016, we added 16,000 customers throughout our territory, representing a 1.6% increase in our customer base. I am certainly proud to be representing our team of 1,600 employees that operate across those 8 states.

Turning to Slide 36, just a quick preview on our strategy, which has really remained unchanged and it is to provide safe, reliable and economic service to our customers, focusing on organic growth through investments needed to provide those services, but also looking to expand in areas where similar operating and growth objectives exist. An underlying goal there then is to be one of the top performing utilities in the nation and we measure that on five criteria: integrity, safety, employees, customer service, and shareholder performance.

Turning to Slide 37, maybe just giving a little bit of perspective in terms of looking back how did we do in 2016 as it relates to some of those areas? I want to start with safety. We performed well on the safety front, showing improvement on the injury side with our incident rates improving and quite a bit lower than the industry average. However, on the vehicle side, we still have some room to improve there, although most of our vehicle incidents were minor. Nonetheless, we are committed to zero at the utility and have room to improve there. On the customer side, Cascade, Intermountain, MDU finished first, second and fourth in the J.D. Power Customer Satisfaction survey. And as I mentioned, we grew our customer base by 1.6%. On our employee side, we continue to focus on employee feedback and development and we have some of the best employees in the business.

Moving on to Slide 38, I want to talk a little bit about our shareholder performance. We did grow our rate base in 2016 by 5%, with an earnings growth of 16%. We also completed a number on regulatory activities, as Dave alluded to earlier, filing 9 cases. We implemented and have implemented $56.8 million in final rate since 2015. And we have got interim rates implemented at $43.6 million. We have pending before regulatory commissions, excluding interim, $9.9 million in revenue request. And in 2016, we did implement and file for new weather normalization or decoupling is will be new mechanisms here in Washington, Minnesota and Idaho. And then in terms of new tracking mechanisms, these are implemented or filed in 2016. We had those in Minnesota, Montana, South Dakota and Wyoming. So again, continuing to look at our regulatory arena in areas where we can make a difference either from a weather normalization perspective or accelerate our recovery through tracking mechanisms.

Want to turn to Slide 39 and maybe change the focus here now to 2017 and beyond. Looking ahead, where do we see the utility growth? As Dave alluded to earlier, we are coming off a pretty strong rate base growth at 12% CAGR over the last 5 years. We expect the growth rate to be 4% as we look over the next 5 years. We continue to expect to see customer growth in that 1% to 2% range per year. We are looking at the completion of several key projects that I’ll talk about in a minute here and then we continue with our regulatory agenda.

So just maybe going a little bit deeper in each of those categories, I will draw your attention to Slide 40. When looking at our rate base growth, you can see from 2012 through 2016, the growth in that rate base resulting in the 12% annual growth rate. As we look ahead, we have got $1.2 billion of capital investment that we are projecting over the next 5 years. When you start on a rate base of $1.9 billion at the end of ‘16, you can see that adding that capital, taking back the depreciation and the deferred taxes, we anticipate that 2021 rate base of $2.3 billion, which is a 4% growth rate.

On the customer slide or customer side, excuse me, on Slide 41 you can see our 5-year average growth rates on customers. On the natural gas side of the business, we have grown at about 1.7% and on the electric side of the business, 2.4% over the last 5 years. You can see that, that compares to a national average on the electric side of the business of 0.55% and on the gas side of the business, 0.57%. We had seen historically, of course, some growth related to the Bakken activity and we get the question a lot in terms of what’s been happening there. Clearly, in 2016, we actually did not see an increase in the Bakken, but yet still continue to see increases in our customer growth, showing our diversity across the 8 states and our growth despite not having any in the Bakken.

Turning to Slide 42, I want to cover off on a couple of our key projects as we look ahead. Clearly, the Thunder Spirit Wind expansion was just announced. We are looking to continue to pursue that here. We have signed our purchase power agreement in December of last year. It’s a 25-year agreement at a levelized cost of $25 a megawatt. And when you look at our 2017 projections for our market energy purchases, we were estimating about 25% of our energy coming from the market. This PPA reduces that by approximately 5% and clearly reduces the market risks associated with the prices – those prices for our customers. These costs would be passed on to our customers through a fuel cost adjustment. The Thunder Spirit Wind expansion project does qualify for full PTCs as our construction – the construction did start in 2016. As you recall, we built out the first part of Thunder Spirit earlier and that site was fully permitted for 150-megawatt project and interconnection agreements as well as substation and transformers have already been sized for 150 megawatts as well.

So Slide 43, when you look at our purchase option, we do need to exercise our purchase option by February 28, 2018. And before we would do that, we would seek North Dakota advance determination of prudence before that option was exercised. We are anticipating if the purchase options is exercised, the costs would be about $85 million, resulting in a levelized cost of about $23 a megawatt. Again, if purchased, this would increase our renewable capacity in our portfolio from 22% to 27%.

On Slide 44, another key capital project for us as we look ahead would be the Big Stone South to Ellendale project. We have been talking about this for quite some time. Construction is underway. It is the MISO, multi-value 345kv transmission line, 160 miles, 97% of the necessary easements have been secured. We have gotten recovery through our MISO tariff with expected completion in 2019.

And on Slide 45, I want to cover off just quickly on our regulatory upgrade. We have got a couple of cases currently pending in North Dakota. We have got the electric request. We had filed for $13.4 million. We are currently receiving interim rates of $11.7 million. That hearing is scheduled for April 10 through the 12. We had our hearing on our Idaho natural gas case. We have updated that filing to $9.4 million. And we are awaiting a commission order from the State of Idaho. In addition to those two, we did file in Minnesota for an infrastructure tracker, as I referred to earlier. We filed that in December of 2016 with an effective May 28 date and that is pending before the commission. In terms of other 2017 potential filings, we are in the process of evaluating several of our gas jurisdictions. And as we make decisions there, we will certainly keep everyone apprised of those.

On Slide 46, as I look to the strengths that the utility brings to the corporation, certainly, our regulated model is one of them. We provide stable cash flows and earnings. We are providing essential services that limit economic cyclicality. We certainly are serving areas of growth as you look at our customer growth rates compared to the national average. We have seen pretty impressive historic rate base growth and we believe that we have got plenty of organic rate base growth in front of us. We are geographically diverse and we have strong regulatory relationships.

So on Slide 47, as I look to the future, we need to execute on those organic plans that I laid out. We have got $1.2 billion of organic growth in front of us over the next 5 years. With that successfully deployed, we will have grown rate base by 4%. We need to continue to focus, of course on a regulatory recovery we have made good progress there, but have more progress to make. And we need to continue to provide a safe and reliable service to our customers.

And with that, I will turn over to the operator for any questions.

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Paul Ridzon with KeyBanc. Please go ahead.

Paul Ridzon

Good morning. Does the 4% – what does the 4% rate base CAGR contemplate as far as the purchase option on Thunder Spirit 2?

Nicole Kivisto

Yes. Thunder Spirit 2 – thanks for the question, Paul. Thunder Spirit 2 is currently not in our – on our capital budget, as you heard Dave talk about though we are the process of putting together our Integrated Resource Plan. And once we have made some decisions on that, we would look to kind of reshuffle or re-look at our capital budget and put out a new capital budget at that point in November here of this year. So it is currently not within our capital, but there are things that we are contemplating within our Integrated Resource Plan that potentially could move a few things within our capital budget as well.

Paul Ridzon

Do you expect the $1.2 billion to stay the same to some shuffling or would that be – would Thunder Spirit be additive?

Nicole Kivisto

At this point, we are still looking at that. And so I don’t have the answer for that today. I would say $1.2 billion is a pretty good estimate in the ballpark, though. But we will provide that – yes.

Paul Ridzon

Thank you.

Operator

Your next question comes from the line of Chris Ellinghaus with Williams Capital. Please go ahead.

Chris Ellinghaus

Nicole, the…

Nicole Kivisto

Hi Chris.

Chris Ellinghaus

What are the key areas of focus and if you are sort of expecting the CapEx to be kind of a hard number, what are the kind of things you might be altering in the budget if Thunder Spirit is a likely issue?

Nicole Kivisto

Yes. As we look to the decision on Thunder Spirit, of course that would be and whether we purchase of that or not, that is going to be contemplated as part of the entire Integrated Resource Plan process. And as we look at our capital budget today, we have provided data points to the street in the past that we had a combined cycle facility within our 5-year capital budget. We are looking at the timing of when we would deploy that or build that. And so that is all being part of the discussion process in terms of the Integrated Resource Plan. As we finalize that and make decisions relative to timing, that’s really what the moving parts would be in terms of our purchase of Thunder Spirit. What does that mean for the timing of a combined cycle and whatnot, does that answer your question?

Chris Ellinghaus

Yes. And given you are getting to be pretty high proportion of renewables, does that mean that you may be more in the need for some peaking, for some following, is that changing maybe the resource that you are thinking about or is the combined cycle partly thinking in terms of how you support their renewables as well?

Nicole Kivisto

Correct, the latter part. We are still – as we build out Thunder Spirit and if we were to put that as part of our portfolio we don’t necessarily see that changing the need for a combined cycle, the timing may change, so.

Chris Ellinghaus

Okay. So might be more, as far as to things that you can juggle in the budget, that might be more of just a couple of year possibility?

Nicole Kivisto

Correct. We are still evaluating that. And so we would come out with more information here as we look at our capital. In November, we will file our IRP here mid-year and we would have a better indication right know. But we currently are in the throes of a lot of internal discussions in terms of our Integrated Resource Plan and especially in light of also the new administration and what our beliefs are with the Clean Power Plan and what’s going to happen with that.

Chris Ellinghaus

Right. The Big Stone South project, how much is that?

Nicole Kivisto

Right now, we have got in our budget around $170 million or around that neighborhood.

Chris Ellinghaus

And as far as changes to the administration in a Clean Power Plan, relative to your states and sort of their objectives, do you think that the Clean Power Plan dying is particularly instructive as to what you might be doing with future generation or basically, I guess what I am saying is, did the states really care as far as what their environmental and renewable objectives are relative to the perspective to have a Clean Power Plan?

Nicole Kivisto

Yes. The states maybe I will just comment quickly for you. The states in which we have generation, we only have one that really has a renewable portfolio standard and that is Montana, it’s 15%. And we are currently meeting that. Our other states have goals and objectives. They are just more – they are not as defined and we are meeting those as well. And so we were already meeting those standards and goals without the Clean Power Plan. Does that answer your question, Chris, or were you...?

Chris Ellinghaus

Yes, that does.

Nicole Kivisto

Okay.

Chris Ellinghaus

As far as sort of where the focal point of one of the Montana commissions letters, have you got any thought in terms of the property tax adjustment mechanism that might be utilized going forward in Montana?

Nicole Kivisto

Yes. We did file, under the property tax tracker in terms of my prediction on where that’s going legislatively. And if that’s what you are asking, that’s hard to tell. We have filed under that mechanism for the first time, actually when we looked historically at our property taxes. That tracking mechanism has been available for quite some time. But we just hadn’t seen the increases in our property taxes and also in addition to that, the timing of our general rate cases, we were able to fold those in. So just this past year, it’s the first time we have actually utilize that tracker. And we have implemented some rates underneath that tracking mechanism in Montana.

Chris Ellinghaus

Not just – I mean just the potential legislation, but also sort of the Montana commission’s attitude towards a tracker that isn’t something that is under your control, I am a little concerned about their attitude towards something like a property tax tracker, not just trackers in general, but for something that’s outside your control, they certainly seem very hostile towards it?

Nicole Kivisto

Right. We have – I mean I guess we have been kind of reading the same thing. You have probably reading, Chris. And certainly, I think the opinion is known with respect to where they are at and their position there.

Chris Ellinghaus

Okay. Thanks for the color.

Nicole Kivisto

Yes. Thank you.

Operator

[Operator Instructions] And we have no further questions at this time.

Dave Goodin

Great. And with that, I would like to then introduce Martin Fritz. Martin will wrap up the four business unit presentations. He is our President and CEO of WBI Energy. Martin?

Martin Fritz

Thanks Dave. Let’s begin on Slide 50. It shows our assets consisting of our FERC regulated pipeline, along with our non-regulated operations. Our FERC regulated pipeline as shown in red, serving the states of North Dakota, South Dakota, Montana and Wyoming. It currently accounts for over 85% of our revenues and is made up of approximately 4,000 miles of pipe, over 110,000 horsepower of compression and 193 billion cubic feet of working natural gas storage. The storage is located three storage fields, shown on the Map as blue dots in Montana and Wyoming. The storage fields include our Baker storage field in Baker, Montana, as Dave previously said, the largest storage field in the United States with the total working gas capacity of over 164 billion cubic feet.

Our FERC pipeline system serves three primary purposes. First, transporting natural gas from the Bakken and legacy low pressure natural gas fields to utilities, industrial and agricultural customers. Second, it acts as a header system to gather and transport associated Bakken natural gas to deliver to other pipelines, to transport the gas out of the area. And the third, it’s used to transport gas in and out of storage for natural gas marketers and also for utilities in order for them to meet required demands during peak heating season. Our non-regulated operations consists primarily of our fee-based natural gas gathering with the gathering field shown as green dots on the map, along with our cathodic protection and energy management companies.

Turning to Slide 51, you can see WBI Energy’s 2016 highlights. 2016 was a reset year for us. We successfully returned our focus back to our core, profitable, regulated pipeline and fee-based gathering business, earning $23.4 million. Last year at this time, some of you may remember, we spent approximately half the analyst presentation discussing Dakota Prairie refinery. Our team did a great job selling the refinery, along with the Pronghorn gathering assets and are doing well in gathering lines under some very difficult circumstances. This significantly reduced our business unit’s volatility and risk and it also helped in strengthening our balance sheet with S&P taking MDU Resources off negative credit watch with the closing of the Pronghorn transaction.

The 2016 highlights continue on Slide 52. Our design, engineering and construction teams did a great job in 2016, completing both our Northern Badlands and Northwest North Dakota expansion projects on time and on budget. This added over 85,000 dekatherms a day of Bakken natural gas takeaway capacity and approximately $3.2 million annually to our revenues. I could not say enough about our WBI team, especially the construction and operations team who have done a fantastic job continuously improving our safety and operations year-over-year. In 2016, we had a zero DART rate, meaning no employees missed any work or had any restrictions due to a safety incident. The team has continued to improve every year for the last 5 years, getting to zero in 2016 from over 300 lost in restricted days 5 years ago.

Now turning to Slide 53 which discusses some of our strengths. With the sales we completed in late 2015 and ‘16 to reset, we are now primarily a low risk, regulated pipeline with stable returns. 75% of our revenues are backed by firm capacity commitments from high-quality customers. We moved approximately 58% of all Bakken natural gas with our hometown advantage consisting of our strategically located existing assets, our long-term relationships, our market intelligence and a long earned reputation as a quality, low cost provider, demonstrated by other midstream companies using us to construct Greenfield natural gas pipelines for them. We also have a strong back office team and a complete design, engineer, construct and operation capabilities. This distinguishes us from many private equity-backed midstream competitors that outsource engineering construction and even sometimes operations, generally having to pay those firms a profit margin on top of the actual project cost. Additionally, being one of only a few regulated pipelines in the Bakken, allows us to capitalize engineering and other labor and earn a return on it for many of our projects, which distinguishes us from some of our other public midstream competitors.

Turning to Slide 54. Now that we have gotten back to our core pipeline and fee-based gathering business, our strategy is to use the strengths we just discussed to be the pipeline of choice in the Bakken and profitably grow to at least double our size in the next 5 years. We see growth coming primarily through our teams focusing on organic growth and Tier 1 Bakken acreage. We plan to invest approximately $387 million of capital in the next 5 years on organic growth and system maintenance. Additionally, we see some potential for acquisitions and a low for longer scenario, as currently reflected in the NYMEX strip. From growth, we see the benefits of scale, diversity and a potential to unlock further value down the road with the option to become an MLP depending upon where all the tax reform currently just starting to be discussed at Lance.

Beginning with Slide 55, the next few slides show why our team is focusing primarily on Tier 1 Bakken areas or it’s new organic growth. Slide 55 notes there are 41 rigs running in the Bakken as of March 1. The count is now up to 47 when I checked yesterday with most of them operating in Tier 1 acreage areas. Drillers have made impressive progress over the last few years and becoming more efficient so as to be successful at lower price tax. However, while Tier 1 Bakken currently appears economical for many drillers, many pundits believe Tier 2 and Tier 3 Bakken drilling to be economical – in order to be economical, oil prices generally need to remain somewhere north of $60 a barrel.

Slide 56 shows the comparison breakeven price ranges for various Bakken and Three Forks tiers versus other oil plays with associated gas. We use this slide to show relativity of the basins in tiers as with continued improvements in drilling performance and depending on service cost pricing, the actual ranges will continue to change over time. As you can on the chart, Bakken and Three Forks Tier 1 appear economical in the range of $35 to $50 a barrel, whereas Tier 2 Bakken and Three Forks begin above the red line, marking $60 a barrel and range up to almost $80 a barrel for breakeven pricing. Tier 2 Bakken is also in a higher range than other basins, such as Permian, SCOOP and STACK, while Tier 1 will continue to compete with any basin.

Turning on to Slide 57, it shows that the NYMEX oil strip would appear to indicate that the outlook for oil pricing to remain below $60 a barrel for the next 5 years. This is as straight as I have seen it in my career. Thus our team is focusing primarily on Tier 1 Bakken areas for our organic growth.

Slight 58 showed some of our Tier 1 Bakken growth projects. The team is constructing in 2017. Our Line Section 25 and Charbonneau expansion projects will at 62,000 dekatherms a day of new capacity and add about $4.7 million of revenues annually. The picture on Slide 58 shows one of the two new compressors that we handed our Charbonneau station. We are also adding a new compressor on our Williston station and construction a brand new position near Tioga, all of which should be in service in the second quarter.

Slide 59 shows our Greenfield Valley expansion project. It’s an approximately 38-mile, 16-inch pipeline connecting the end of our existing pipeline system near Mapleton, North Dakota with the Viking gas transmission pipeline near Felton Minnesota. The project is supported by additional winter feeding reliability and growth in Eastern North Dakota and Western Minnesota. We are currently in the FERC pre-filing process and expecting to formally file our application for the FERC project approval sometime in the second quarter with construction to begin in 2018.

Slide 60 had some of our thoughts around possible acquisition targets. We believe there should be opportunities arising in a continued low for longer environment. First, there are currently a number of troubled midstream companies with high debt loads that will need to be resolved through asset or entire company sales as part of a lender restructuring process or in bankruptcy proceedings. Additionally, in the last year, there have been a number of larger sized pipeline and midstream mergers and a number of those companies are in the process of – or are considering shutting some non-core assets. As we are looking at any acquisition, it has to be the right opportunity for us to take advantage of our strengths. Our preference is regulated pipeline and fee-based gathering. We look first for those that can enhance our current assets or our bolt-ons to connect our system with additional markets or customers. When we look outside our general area, we look for opportunities in similar terrain and off-market basins as we will generally not participate in overheated markets.

So in summary on Slide 61, we use the end of 2015 and ‘16 to reset and return to our core, profitable pipeline and fee-based gathering business. We know look to grow and that we have doubled the size of our business in the next 5 years. Given what appears to be a low for longer price environment, we plan to do this by investing approximately $387 million in capital, focusing primarily on organic growth in Tier 1 Bakken areas and by also looking for appropriate merger and acquisition opportunities.

With that, I will turn it over to the operator if there are any questions.

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Chris Ellinghaus with Williams Capital. Please go ahead.

Chris Ellinghaus

Hey, Martin. Just one question, of that $387 million, what is allocated to possible acquisition?

Martin Fritz

None of that. That is all organic growth capital and maintenance capital. So any acquisitions will be outside that number.

Operator

[Operator Instructions] And your next question comes from the line of Paul Ridzon with KeyBanc. Please go ahead.

Paul Ridzon

I missed your comment around doubling the size of the business, what was the context of that comment?

Martin Fritz

Basically doubling the size Paul, over the next 5 years in terms of EBITDA.

Paul Ridzon

That was – is that with the $387 million of CapEx or do you need external acquisitions to do that?

Martin Fritz

That is what the $387 million of organic growth and possibly a smaller acquisition.

Paul Ridzon

So larger acquisition would more than double, is that fair?

Martin Fritz

That would be a fair statement.

Paul Ridzon

Thank you.

Operator

And we have no further questions in queue at this time.

Dave Goodin

Well, thank you. And I will now turn it over to Doran Schwartz, our Vice President and Chief Financial Officer. Doran will do a recap of the financial overview. Doran?

Doran Schwartz

Thanks Dave and thanks everybody, for taking time this morning after rescheduling last week. Appreciate your interest in the company. I will just recap here from Slide 64, just to talk about our results again in 2016 from continuing operations. You can see that EPS grew about 32% from 2015 to 2016, continuing operations defined as the results from the two construction segments, the two regulated segments and the ongoing other category. All discontinued operations, including Fidelity and DPR would be netted out of these numbers on Slide 64. So really, it’s broad based, speaks to the strength of our diversified strategy going forward on the two pillars construction and regulated and delivering very strong earnings per share growth in 2016.

Turning to Slide 65, this is now your all-in numbers. So this will include the discontinued operations and the effects of certainly, moving out of the strategic moves away from commodity based businesses such as the refinery as well as the full exit from our E&P business that occurred in 2016. Looking forward, again we look at our business now from a continuing basis with a lower risk profile having a strong base of regulated and growing earnings and cash flows while still having great growth potential at the regulated businesses while continuing to be well positioned for the infrastructure conversation that is occurring nationally with great growth potential on the construction side of the business as we think about our continuing operations.

Getting into the business units, specifically on Slide 66, construction materials, again I think you heard from Dave Barney that we have momentum at this business. We have strong backlog at the end of 2016, its record year end backlog of $538 million. That’s up about 10% from the prior year. We see positive coming in now in 2017 from the FAST Act of $305 billion national transportation bill. And then we are also forecasting for expecting slightly higher margins in 2016 – in 2017 versus what we experienced in 2016. Forecasting revenues in 2017 of $1.85 billion to $1.95 billion, we do see very positive construction trends. Again, just to reinforce as far as incremental infrastructure spending above and beyond the FAST Act or any effects from tax reform, we are not including that in our guidance. We will – we see those as likely positive to our business over the next 5 years in terms of time to time when those might impact us, is harder to do. And so we are going to reflect that in our guidance as we get more clarity on that going forward. So in total at Knife River, a very good year from ‘16 to ‘15, a record year of earnings, beating the record that we set in 2015. And I think Dave Barney mentioned we are feeling the effects of some weather or certainly weather [ph] than it was that at this time last year in California, you can read about that in the papers. That’s no surprise to anyone. So January and February, we felt some effects from weather there compared to 2016 here as we start 2017. But again, I think very optimistic about the momentum in the business as we would think about going forward in ‘17 and beyond.

Turning to Slide 67 on construction services, again very strong backlogs, you have heard from Jeff Thiede of $475 million at the end of the year. We are expecting 2017 margins to be comparable to what we saw in 2016. It was a very good year in ‘16 in terms of earnings growth. And we see continued opportunities to Jeff’s points around opportunities that we are bidding on in a strong bidding environment and strong positive construction trends that are out there as we see things here at this point in time. We are forecasting 2017 revenue at the business to be $1 billion to $1.1 billion for 2017.

Turning to Slide 68, this gets into the regulated side of the business. And the first business we will talk about is the utility, the electric and natural gas utility. As we look at 2017, we have got $277 million of capital expenditures in our forecast, $1.2 billion over the 5-year forecast period. And included in that number is the Vessey line, the transmission line that Nicole talked about here earlier, which got $175 million or so of CapEx included in our 5-year capital. In Thunder Spirit 2, it’s the expansion of the wind farm that we put in service in late 2015. The expansion of that Thunder Spirit 2 is not in our capital forecast and we will have I think a better update for you in terms of our capital forecast in conclusion with the timing of our filing of the Integrated Resource Plan here mid-year in 2017.

Rate case activity is important. We need to continue to execute on our rate cases and that we have had very good success. I think Nicole and her team have done a great job here as we take a look at the final rates that we have been able to put into place. We do have a fair amount of revenue that’s out for us right now pending $55 million. We have some of that in implemented interim rates currently. But clearly, a key to the utility going forward is the continued execution on regulated rate case strategy. We do expect customer growth at above national averages, 1% to 2% across our service territories that extend from Minnesota out to the West Coast. And we are seeing rate base growth of 4% on a CAGR basis from the end of 2016 growing from $1.9 billion to $2.3 billion at the end of the fifth year. Very good year in 2016, saw some very nice growth at the utility business versus where we came in for 2015.

Turning to Slide 69, at the pipeline and midstream, as you just heard from Martin, we have $41 million of capital expenditures in the forecast for 2017, $387 million over the 5-year forecast. We are very focused on organic growth opportunities that we have specifically identified, such as the Charbonneau & Line Section 25 projects, as well as the $55 million to $60 million FERC regulated project, the Valley Expansion Project that you heard Martin talk about here. Very nice year in 2016, a lot of strong storage activity that we saw in 2016 versus 2015, which is a big part of the growth that we saw in earnings in 2016 and coupled with the capital forecast that we have at the pipeline. Again, as you heard Martin, we expect and want to continue to grow that business over the next 5 years.

If you think about how the company has repositioned itself now with the strategic exits from the refinery from the E&P business, from the Pronghorn transaction, which closed on January 1, 2017, we are very focused on the continuing businesses. And the balance sheet is, we believe in a sound financial position. That positions us well for the future. When we take a look at the debt to capital ratio at the company, it’s the amount of debt, as a percentage of the overall capital, is higher than it has been historically, I don’t necessarily think that’s an indication that our balance sheet, however is weaker. Certainly, we felt the effects of the write-downs from the exits of those – the businesses that I just referenced, primarily the refinery and the E&P businesses. But I think another factor that may be driving the change in the debt to capital ratio is just the capital expenditures that we are putting to work at the regulated businesses. You heard from Dave, 85% of our capital over the next 5 years is that the regulated businesses. They have higher debt to cap targets than the non-regulated businesses. So by definition, putting more capital to work at those businesses well, increase the debt to capital ratio even with that, it’s not necessarily an indication that the balance sheet is weaker. It actually is stronger with more and more of the debt being at the regulated businesses. So we feel good about the financial position of the company coming out of 2016 going into 2017.

On Slide 71, our funding plan for 2017 really no change here from what we had communicated back in February when we initiated our guidance. We expect that our capital plan will be funded primarily from operating cash flows. We put in our press release, an estimate of operating cash flows of between $425 million and $475 million for 2017. We are not changing that today. And in addition to that, we expect to fund our capital and our dividend with the asset sales, I mentioned Pronghorn, for example, that was $100 million transaction. Our share of that transaction, $100 million that closed in very early January 2017 and some small debt issuances that will be at the regulated businesses to fund their capital plans in 2017. We are not expecting equity issuance in 2017 based on our current forecast. And I would highlight, too, that our credit ratings right now are, we believe, are strong with stable outlooks and BBB+ ratings from the rating agencies that take a look at the company.

Slide 72, our dividend has been really a fundamental way that we have been able to return value to shareholders for a long period of time. We have paid a dividend now for 79 consecutive years and we have increased it now for 26 straight years. It’s something that qualifies us as a dividend aristocrat. That’s a status that very few dividend paying companies can say. And so we appreciate the fact that we have been able to provide value back to our shareholders that Dave mentioned earlier, 62% TSR. Last year, certainly, stock price appreciation is a fundamental component as we look to grow earnings and earnings per share, but the dividend has certainly been over time a key component of returning value to shareholders and we anticipate that will continue going forward.

Slide 73, again EPS guidance for the year, $1.10 to $1.25. I know in 2016 we came in with earnings per share at $1.19. I would just reiterate that just to I guess clarify that $1.19 as far as how we might look at it, we have the multiemployer pension, the favorable change in the estimate of approximately $0.04 that occurred in the fourth quarter of 2016 at the construction materials business. If you were to net that out of the $1.19 and then remember too that we had about $0.03, $0.03 to $0.04 of earnings in 2016 from the Pronghorn. Again, that transaction closing in early 2017, we won’t have those earnings in 2017, do have the proceeds, however. And so if you were to net that out we are around $1.12 or so and so we are essentially putting the low end of our EPS guidance range right around where that $1.12 came in if you were to net out those two items or the impact from those two items in 2016. So our range right now at $1.10 to $1.25 initially out of the gate here as we take a look at 2017. For those that would complete my remarks. I think, at this time, Brent, why don’t we just open it up for some consolidated overall wrap up type questions from the group.

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Paul Ridzon with KeyBanc. Please go ahead.

Paul Ridzon

The $300 million placeholder for M&A, where do you think you are most likely to utilize that?

Dave Goodin

Hi, Paul. This is Dave. I commented a few things at the onset, but let me add a little more color to the $300 million. It’s really available for all business lines as we think about opportunities. We talked about resumption of M&A activity at particular construction materials and then thinking about construction services. Again, those businesses are really spun from M&A activity from early to mid ‘90s till not that many years ago. And so certainly targeting that, you heard Dave Barney talk about existing markets, the 15 states he is in, bolt-on type operations in markets that we understand. Certainly, that would be a target of that. Potential for that, too, would be things like incremental growth for the utility business. Nicole did mention Thunder Spirit II is not in the current $1.2 billion 5-year. Certainly, there is moving parts there with Clean Power Plan as we think about our Integrated Resource Plan, but that could be an option for that as well depending on how she kind of looks at her generation mix. And then Martin did mention about some incremental type projects that would be complementary to his current system. Again, the 387 that he has got in his CapEx is really primarily maintenance and organic growth, if you will. So, I think that gives you a little bit of color. Jeff Thiede, not to omit, Jeff is certainly part of this. Jeff certainly thinks about this business line. He has got a broad national footprint already. Would there be something incremental or additional to that? Certainly, open to that. But I think it gives you an idea. It’s pretty broad-based. And again, that’s only 2017 and 2018, 150 each year as we think about through the 5-year and certainly we would continue to update as those monies get allocated and utilized.

Doran Schwartz

And Paul, this is Doran. I would just highlight too that again in addition to not including anything in our guidance for ‘17 related to potential infrastructure spend that’s being discussed above and beyond the FAST Act at a national level or tax reform, we haven’t included anything in our guidance associated with the $150 million for ‘17 or $150 million for ‘18. As those projects materialize and the capital is more specifically allocated to opportunities as identified, we would incorporate that into our forecast and then provide updated guidance accordingly.

Paul Ridzon

Beyond ‘17 kind of as we get into ‘18 and ‘19, where do see the trajectory of margins going into construction businesses?

Dave Goodin

Maybe we’ll start with Dave Barney and then we will move on to Jeff Thiede. Question, Dave, was Paul was wondering if we think about beyond ‘17 and to ‘18 and ‘19, how are we thinking about margins potentially in kind of more trajectory-based?

Dave Barney

Okay. Well, obviously we believe as the new infrastructure that the new administration is looking at that we don’t have details yet. We are expecting margins to continue to grow as things get busier. So, we would expect our margins to continue to grow over ‘18, ‘19 and probably even ‘20.

Dave Goodin

Jeff, would you comment as you are thinking about it in the services side?

Jeff Thiede

Absolutely. I think I agree with Dave. As we see the supply and demand start to work in our industry, there are better opportunities with reduced competition and we think through our operational excellence measures that will continue to be more efficient and increase our margins.

Paul Ridzon

And then have you talked about an MLP at WBI before?

Dave Goodin

Paul, we have – I mean, it always comes up at some way, shape or form, Paul. Certainly, we understand you need scale in that business, you need sufficient EBITDA. I mean, you need a variety of things, full inventory of dropdowns at a very foreseeable for a period of time and that those dropdowns would have a very line of sight measurable growth in EBITDA. And so certainly, it’s something we are very aware of. We are certainly very keen and conscious of that. At the same time, we think it’s pretty integral as part of the regulated side of our business.

Paul Ridzon

Where is the business now compared to where you see critical scale being making it possible?

Dave Goodin

I will ask Martin to comment maybe a little more about the details of the business.

Martin Fritz

Yes. Generally, you need to get to about $150 million to $200 million of EBITDA to target an MLP. We are running around $50 million, looking to go towards $100 million plus.

Paul Ridzon

Thank you.

Dave Goodin

Thank you, Paul. Any other questions, Paul?

Paul Ridzon

No, I’m all set. Thank you.

Dave Goodin

Okay, appreciate the questions.

Operator

Your next question comes from the line of Chris Ellinghaus with Williams Capital. Please go ahead.

Chris Ellinghaus

Hey, Doran, when you were talking about the dividend track record and got me just thinking about, you have got volatility and some business cycle risk in the construction businesses, how do you think when you are doing your sort of dividend planning about the payout from the construction businesses?

Doran Schwartz

Good question, Chris. So I would say, from a – as we think about the dividend Chris, I think we look at all of our business units contributing. I think our business risk profile, to your point, it’s higher on the non-reg side than the reg side, but again I think from a contribution standpoint, we get less from a targeted contribution rate, less of that comes from the construction side of the business. I think as we think about the dividend payout ratio going forward, I think clearly, we had a ratio here as we exited the E&P and refining and Pronghorn businesses. Clearly, from EPS standpoint, our payout ratio was higher than where we would want it to be longer term. But where that payout ratio was in the 75% to 80% range in 2015, it came down into the mid-60s in 2016. And we would want that to continue to trend down, to reflect a mixed payout ratio of what we might see in the different industries that we participate and the utilities are going to be call it 50% to 70%, 75% range, depending on the utility company you are looking at. Midstream is obviously a higher payout type business as well. The construction companies, materials tend to pay a dividend, but a lower dividend payout ratio than regulated companies and services. It’s hit or miss, probably less pay a dividend in the services industry. And so as we take a look at the dividend, we would take a look at the mix of our overall businesses and try and target a payout ratio that’s going to – from a blended perspective, reflect where we are investing our money and where we are making our money at the respective business units. So I would anticipate our payout ratio will continue to trend down. Our goal is to grow earnings per share faster than the growth rate in the dividend towards more of that blended payout ratio over the next 5 years.

Chris Ellinghaus

Okay. And Martin, you were sort of talking about the L issue and also wanting to double the business over the next 5 years, so as far as any kind of aspirations for MLP, you are really talking beyond that 5-year time horizon without some…?

Martin Fritz

Yes, the option. I mean given the market, I mean just to follow-up on your prior question a little. Historically, $100 million would get you to the range, but just given the dynamics out there, you would want to be in that $150 million to $250 million range, so yes, it’s aspirational. But we are using it as an option. We don’t know that we are going to get there, it depends on the time. Why we consider it an option is there is potential value. So for example, one of the things in the slide that I didn’t discuss is our team is very efficient at building and usually can build at about a 5x to 7x EBITDA. Well, obviously, if you look at most drops by most MLPs, they are 9x to 10x, so essentially, those projects are immediately increasing cash flow that continue funding this business or other businesses. So there is an opportunity to create some value out there. So that’s why we consider it aspirational. And then obviously, as time changes and things changes and to one of the earlier questions, if you have a larger acquisition, you could get there quicker. But given what we see right now, given where the state of the Bakken is, NYMEX kind of being flat, we need to be conservative and we need to grow at a measured pace. So we think double the size is in 5 years is what the team can handle and it’s a good pace.

Chris Ellinghaus

Okay, Thanks for the clarification. I appreciate it.

Dave Goodin

Thank you, Chris. Any other questions, Chris?

Chris Ellinghaus

No, I am good.

Dave Goodin

Okay. Thank you.

Operator

[Operator Instructions] This call will be available for replay beginning at 1.00 PM, Eastern today through 11.59 PM, Eastern on April 3. The conference ID number for the replay is 88456524. Again the conference ID number for the replay is 88456524. And at this time, there are no further questions. I would now like to turn the conference back over to Dave Goodin for closing remarks.

Dave Goodin

Well, again, we appreciate everybody tuning in for our – few days delayed Analyst Day, doing it on a webcast here today versus in person last week given all the weather challenges that New York City had. We will continue to keep you updated. We will have first quarter earnings release right at the first part of May. Certainly, you got a chance to hear from each of our business leads today and along with Doran as to a consolidated recap. Again here at MDU Resources, our model is building a strong America and I think you can get a sense and a feel from our construction businesses led by Dave Barney and Jeff Thiede, what they are doing with their $1 billion in backlog that we have at the end of the year and how we are viewing that as 2017 plays out. And on our regulated energy delivery between the coal, the retail business and Martin’s pipeline business, certainly a lot of invested capital is headed their direction and we would expect some returns and achieve some additional CapEx will yields earnings down the road as well. And so we again, look forward to visiting with you at the earnings call. And we again, thank you for your interest here today.

And with that, I will turn the call back over to the operator.

Operator

Thank you. This concludes today’s MDU Resources Group conference call. Thank you for your participation. You may now disconnect.

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