Chesapeake Utilities' (CPK) CEO Michael McMasters on Q4 2017 Results - Earnings Call Transcript

Chesapeake Utilities Corporation (NYSE:CPK) Q4 2017 Earnings Conference Call March 2, 2018 10:30 AM ET

Executives

Beth Cooper - Chief Financial Officer

Michael McMasters - President and Chief Executive Officer

Analysts

Insoo Kim - RBC Capital Markets

Spencer Joyce - Hilliard Lyons

Sarah Akers - Wells Fargo

Nathan Martin - Seaport Global

Operator

Good morning. My name is Casey, and I will be your conference Operator today. At this time, I would like to welcome everyone to the Chesapeake Utilities 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Beth Cooper. You may begin your conference.

Beth Cooper

Good morning everyone. I would like welcome you to Chesapeake’s fourth quarter and year-end 2017 earnings conference call. Today's call is being hosted at our corporate office here in Dover, Delaware. Joining me in the room today are our President and CEO, Mike McMasters, other members of our senior leadership team and also other members of our management. Once again thank you for joining us.

Turning to Slide 2 before we begin today's presentation, I first just like to make some references to the fact that our presentation today includes forward looking statement. I would ask that you refer to our annual report on Form 10-K, which was filed yesterday morning. To take a look at those, particular items that might cause our actual results to differ from the forward looking statement. I would also like to make a note that today's presentation does include certain references to non GAAP measures including gross margins and adjusted EPS.

And now, what I would like to do, is turn our presentation over to Mike McMasters, who is going to begin with a discussion regarding our earnings for the year.

Michael McMasters

Thanks Beth. I guess on Slide 3, you will see our net income and for the full-year and also the fourth quarter, you will notice reported earnings of $58 million adjusted $47 million those adjustments are to reverse the impact of Tax Reform act and also to add back the unrealized mark-to-market loss. Again $58 million reported earnings, $47 million of adjusted earnings. On earnings per share basis that’s 355 and 289.

On the fourth quarter, you will notice EPS reported $1.59 and then adjusted at $0.93. I guess one of the significant things with all of the changes that we are seeing primarily with the Tax Reform impacts and we have provided some guidance below. Our forecast of per share growth this year or 17% and that includes both Tax Reform and the other key projects.

Turning now to Slide 4, I will discuss our diluted earnings per share first, what I would say is that the five-year compound annual growth rate of earnings per share is 12.3% in 10 years 10.7. If you make the same adjustments that we made in the prior slide that would be 7.7% EPS growth rate for five years and 8.4% for 10 years.

If you look at our dividends per share, five year growth rate 6% the 10 year 5.2% what you can see is that our dividend growth rate is lower than our earnings per share growth rate which supports that dividend.

Turning to Slide 5, again using adjusted earnings per share of 289, significant growth in all of our business if you look at the first bullet up there, significant growth in all of our operating businesses and based on our increase gross margin of $24.6 million and that excludes the unrealized mark-to-market, just as a benchmark, that $24.6 million for 23% increase over our recent averages.

In operations, Eight Flags CHP plant approximately $5 million of additional gross margin, Eastern Shore rate case settlement 3.7 million in margin in 2017 it will be 9.8 in 2018, excluding any of the adjustments again for of the Tax Reform Act.

The natural gas growth 4.9 million increase in gross margin, propane operations $2.8 million in incremental margin, Aspire Energy $2.3 million in additional margin. On the capital investment sides, we did complete two project, Eastern Shore system reliability project and White Oak project.

We also got approval for hundred $117 million expansion, we were able to complete a component of that 2017 with the TETCO upgrade. Moving on to Florida, $48 million project for Florida pipeline and distribution projects initiated and expected to go in service during 2018, or expected in the second quarter.

We are continue to make investments to support growth and reliability in Delmarva and the Florida distribution businesses. Total return to shareholders of more than 17% for one, three, five and 10 years ended December 31.

Dividend increase by 6.6% in May of 2017 with a payout of 44% in adjusted EPS. Five year average dividend growth at 6% a decrease of over last 14 years. Dividend growth once again supported by earnings per share growth.

With that, I will turn the hard work over to Beth.

Beth Cooper

Thanks Mike. Turning to Slide 6, Mike talked a little bit about the years’ result and I'm just going to spend a minute talking about the fourth quarter, because it was a very strong quarter for the Company.

Once again, when you exclude those significant items which represented $0.66 on a net basis per share, you will see that our earnings per share in the fourth quarter grew from $0.73 to what would be $0.93 that $0.20 increase would represent a 27% increase quarter-over-quarter for the fourth quarter of the last year. Those results were primarily attributable to higher gross margins both in the regulated and unregulated energy segments again that representing $0.28 per share.

Moving to Slide 7, you will see that we have got three slides here where we would like to spend some time talking about Tax Reform. The first slide includes the discussion of the key impact, the second one talks about where we stand within our various regulatory jurisdiction and the third slide I will just give some concluding remarks overall in regards to Tax Reform.

Beginning with Slide 7, the first thing as you know, the new tax rate on the federal side became effective January 1st, but what that did was it resulted in us having a to revaluation of our differed taxes at the end of the year. On the regulated side that resulted in us establishing a regulatory liability equal to $98 million.

On the unregulated side, that resulted in us being able to take in the earnings $14.3 million as net income or $0.87 per share. That revaluation on the unregulated side is a direct result of the investments that we have made in the last five years including Eight Flag, Aspire Energy transaction and the growth that’s occurred in those unregulated businesses.

When we think about it on a go forward impact in terms of the impact on our future results on a regulated side, currently we are in discussions and we will talk about that in more detail on Slide 8, but we are in discussions with those regulatory bodies in regards to how fast this regulatory liabilities will flow back as well as the impact of Tax Reform on customer rates.

On an unregulated side, certainly, the tax rate change will be positive in our unregulated businesses and ultimately, we don’t know, but we view and could foresee some adjustment in terms of the competition in regards to pricing our margins.

Lastly, as a relates to depreciation in interest, when we look at it from the regulated perspective, bonus depreciation was eliminated from the utility businesses effective September 27th. However, two of our largest projects were far enough along that we will still have the bonus depreciation impact of 40% this year and then as we move forward certainly, we will be under the MACRS depreciation.

On the interest side, the regulated entities are allowed to current-period interest deduction. On the unregulated side, we will be qualifying for a 100% bonus depreciation affective September 27th and in our forecast and projection, we see no interest being excluded because of the limitations as it relates to 30% of EBITDA, everything should be fully deductible.

Moving to Slide 8 by jurisdiction, I will just touch upon each of those. Beginning with Florida, in our electric operation, we had a limited proceeding where we received an order in December and within that order it prescribes how Tax Reform will impact that particular division.

Basically within 120 days, we have to adjust customer rate and in addition to that, the order also prescribes the amortization of the regulatory liabilities within that actual division. On the natural gas side, we are currently engaged in multiple discussions with the PSC, as are other utilities and we are working on a proposal to submit to the Florida PSC early this year.

In Delaware, we are underway also in preparing a filing, we will be required to submit something by the end of March that addresses the Tax Reform impact in regards to customer rate as well as get some indication as to how the treatment or the flow back of those regulatory liabilities are going to occur Delaware.

In Maryland, we have already submitted some preliminary estimates in the middle of February, we are fine tuning those as we speak and in addition, we will be providing more information as a relates to the regulatory liabilities associated with both the Maryland division as well as Sandpiper by the end of March.

Lastly, in regards to FERC or our Eastern Shore pipeline, the settlement agreement that we entered into in December basically included the effect and accounted for any change as a result of Tax Reform.

Moving to Slide 9, just some key takeaways overall. At the present time, we estimate that our 2018 EPS impact in terms of the unregulated energy businesses will be an incremental $0.10 to $0.15 per share. We are, as I mentioned earlier, engaging across the board with our various regulatory bodies regarding the benefits to customers.

We do know that lower rate to customers will ultimately impact our cash flow from operations, but our estimates today do not indicate that it will be a significant impact to either our financing needs or our financing costs. I touched earlier upon the fact that interest deductibility, we believe will be retained.

On the unregulated side, the 100% expense deductibility, we see as an upside in our unregulated businesses, particularly as we continue to grow and expand our portfolio, and then lastly certainly, we will continue to provide updates through these calls and other communications, as we progress through the year and we will refine our assessment and impact accordingly.

Moving to Slide 10, just touching on many of these calls, we talk about really it’s been fundamental and paramount that we have a balance sheet that can support our growth and what this slide shows is at the end of December we were sitting with book capitalization that total about $944 million. That’s over or approximately a 100% increase when you turn the clock back about five years ago.

Today, we are sitting with equity as a percentage of total capitalization of just under 52%. On a long-term debt side, we have already made commitment since finding us later this year a $100 million of long-term debt in two tranches, one by May, the other by November at an average costs of 3.3% and we will continue to look to utilize the permanent capital market as necessary to maintain and to target and to reach our target capital structure.

Our capitalization has grown and turning to Slide 11, as a result of the investments that we have made and what you will see on this slide is that we basically invested approximately $950 million when you look at the six year period.

We have laid out before CapEx forecast for this year, which we also projected to be very strong at a $182 million with the largest thesis coming in our natural gas transmission businesses, both with Eastern Shore and Peninsula pipeline as a result of the project that Mike mentioned earlier and he is going to talk about in just a few minutes.

As well as continued growth in our natural gas and electric distribution businesses, as a result of our system conversion, organic growth and some of the expansions that are underway there as well. So the investments that we have made over the long-term, we tried in several of our presentation to show how those translate into incremental margin growth.

Moving to Slide 12, we don’t see that in 2017 those investments translated into an additional $13.5 million and you will recall in the beginning of the presentation, Mike talked about that our gross margin for the year increased by $24.6 million 13 of which came from these projects, so certainly another $11 million that’s coming from organic growth that’s not included in here.

Growth in our unregulated businesses, whether that be in propane, whether that be in Aspire, whether that be in PESCO growth, so strong growth coming from projects and then also some areas outside of what is shown in this table.

As we look to 2018 which you will see, is there is an addition of $16.7 million that we expect to add in 2018 from the investments that we are making, the rate proceedings that are finalized, so strong margin growth also coming from these type of investments in 2018 projected as well.

And with that, I’m going to turn it now over to Mike, who is going to discuss our performance quadrant.

Michael McMasters

Thanks Beth. Turning to Slide 13, the performance quadrant, what you will notice in the far right hand side corner, is that Chesapeake is continuing to maintain our position in that that top right hand quadrant, basically that’s driven off of strong returns on capital and also strong investments.

The other is the side effect that this had was I think Beth mentioned a little bit earlier was it impacts that the Tax Reform benefits, there large level of CapEx coupled with bonus depreciation generated large deferred taxes, which we then were able to write in on the unregulated side of our business.

Turning to Slide 14, what you are seeing first is Eastern Shore’s natural gas, capital investment of 117 million that’s a 2017 project, we are estimating $15.8 million in the first full-year of full operation, we recognized 433,000 in 2017, with the completion of the TETCO upgrade. In addition we got a lot of construction underway still, we expect to place those facilities into service throughout different periods in 2018.

So by the end of 2018, we should completely finished with those projects. We are putting in 23 miles of pipeline looping. 17 miles of new mainline expansion, so I mentioned upgrade to the TETCO interconnect 3750 horsepower of new compression. In addition we are adding 61,162 dekatherms per day of capacity.

Turning to Slide 15, with the Florida Natural Gas projects, first, the Northwest Pipeline expansion is a $35.9 million project, we are estimating $6 million in annual gross margin once it’s in service, we expect that to happen in the second quarter of 2018, it makes 38 miles of pipeline to our transmission and five miles of natural gas distribution. Customer commitments of 68,500 dekatherms per day with the total capacity of 80,000 dekatherms per day.

The next project New Smyrna pipeline expansion a $9.1 million capital project, 1.4 million of estimated annual gross margin, we expect that to be in service the third quarter of 2018 is 14 miles of transmission pipeline. The Belvedere pipeline expansion $3.8 million of capital 600,000 of estimated annual gross margin in service third quarter 2018.

I'm going to say something really quick about the Northwest project, you will notice you can barely see it in top left-hand corner of Florida just inside I guess the straight line, we have got interconnects with Florida gas transmission and that particular interconnect puts us in a very strong competitive position as we have lower zone range of transportation rates in that particular corner and so that helping us make this project profitable.

Turning to Slide 16, regulatory update. On February 28 just earlier this week, the first is the letter order approving Eastern Shore settlement and we still have to wait 30 days to the right to rehearing to expire before it becomes final. We have also gotten a certificate of public convenience for that 2017 project, 117 million we just talked about.

In Delaware we got a rate case settlement of 2.25 million annual increase in rates for the year and three months ended December 31we report 831,000 and 431,000 respectively way to the increase rates. In Florida for PSC approved are limited proceeding via settlement agreement, including a 1.6 million annualized rate increase effective in January 2018. Those revenues are starting in January.

Turning to Slide 17. Just to really recap some of the other operations. Our propane operations, as you can see on top left-hand corner, we have got a growth of $2.8 million out of propane operations from a variety of things. Some of this was margins. Some of this was growth through volumes and also the AutoGas project or initiative is also showing great future.

We are actually getting help from customers in AutoGas market as they are looking for us to strengthen or infrastructure there to expand new services. We think about our strategy below that. We are looking for organic growth in the existing markets. We are expanding growth into new territories beyond our geographic footprint via start-ups.

We are looking for acquisition opportunities that can roll into our existing operations. We have got targeted marketing to commercial and industrial users to convert the propane and expand our customer base. We are targeting new community gas systems in high-growth areas and expansion of the propane vehicular platform through AutoGas. Our propane business units provide opportunities for us to earn higher return than allowed in a regulated environment.

Turning to Slide 18, Peninsula Energy Services Company. And what you can see here is sort of the impact for that mark-to-market loss, which you will notice as reported numbers, gross margin 2.2 million, operating income of negative $3,147,000. We adjust out the mark-to-market, you have got gross margin of approximately $8 million and $2.6 million of operating income. So it had a significant impact on us and most, almost all of that mark-to-market occurred during the last week of December.

Moving onto Slide 19, talking about shareholder return. Now if you look at the left-hand side, you will see our return relative to all New York Stock Exchange companies. You will notice that for the three years, five years, 10 years and 20 years, we are all top quartile in the 10-year top decile, and then finally the one year, 63% or higher than the 50% also or above median. Looking over to annualized share returns for the performance peer group, we are in the 75th percentile in every year. Very proud of these accomplishments.

Turning to Slide 20. Our strategic focus in all stores really with our employees. We have engaged employees are doing a great job day in and day out and it all starts there. Looking to maintain operating efficiency and provide safe reliable service our customers. From a growth perspective, we are focused on pipelines, Eastern Shore and Peninsula pipeline, natural gas and electric distribution, the unregulated businesses.

This could be Combined Heat & Power, the Eight Flags as an example, Aspire Energy, our propane and also our marketing. And we are looking to expand our skill sets. We have got strong financial performance and a consistent track record that we just spoke about that in the last slide.

The balance sheet that supports are growing. And as Beth mentioned earlier, we are maintaining capitalization of 50% to 60% equity, the total capitalization. The total assets of 1.4 billion with approximately 1.3 billion of those being in plant. We have high investment credit rating, we have committed bank lines of credit and available capacity to raise the capital we need. Future earnings growth opportunities, we are identifying profitable capital investments that produce earnings, growth and attractive returns.

We have $191 million investment in capital in 2017 and $182 million budgeted for 2018. We are containing to develop and harvest growth opportunities based on our core competencies to further expand our capabilities for future growth. We continue to expand our capabilities to buy new services expand our footprint, develop unregulated opportunities all to grow earnings and increase shareholder value.

With that, we'll open it up for questions.

Question-and-Answer Session

Operator

Great, thank you. [Operator instructions]. And your first question comes from Insoo Kim with RBC capital Markets. Please go ahead. Your line is open.

Insoo Kim

Hi, good morning everyone. Thanks for providing some framework around your growth for 2018. The 17%-plus number that you guys gave, I guess, if you take out the Tax Reform benefit of $0.10 to $0.15, it should be more in that 13% to 14% range. And I guess is the assumption embedded in that growth just the projects and initiatives that you have already laid out for the year?

Beth Cooper

Yes. that is the case, Insoo. If there were additional projects that come along that aren't factored in to in our capital budget today, or you know, incremental opportunities on the unregulated side, those would be above and beyond, but it's what we have laid out right now.

Insoo Kim

Got it. And I know, on the financing side, you are set to issue about $100 million of long-term debt this year. I guess if that's the case, then that could potentially get your equity-to-cap ratio slightly below that targeted 50% to 60% range. Are you pretty set on trying to maintain that range.

Beth Cooper

We can, fall below that for a short period of time. You would not see us stay below for a long period of time. And I think, you know, as we see things right now and we have looked at our preliminary numbers for the year, what they show, right now, we are not forecasting, you know, an equity issuance this year, you could potentially see us access the debt capital markets again, given our current short-term borrowing levels.

But you know, we are going to proceed through the year a little bit more and I would say into, you know, we are going to continue to reassess, we'll look at where the equity markets are, we'll see what an additional projects come to the table and then, you know, we may refine that as we continue to move through 2018.

Insoo Kim

Understood. And just one more question if I may. When you look out over the next few years of CapEx opportunities, are you seeing it being a collection of smaller investments across your businesses? Or are there some more material opportunities that could potentially be in the pipeline?

Michael McMasters

Yes, we are always looking for the larger opportunities, but we are also making sure that we are doing all the work underneath that. Whether it's the distribution growth in addition to the transmission growth and in addition, the unregulated company. So we, and we have a five year outlook, if you will, we go to our strategic planning process where we are constantly questioning our existing strategy and looking to see if there is other things that we should be doing to keep those opportunities in the pipeline.

So yes, I think it’s going to be I guess I would say all of the above kind of thing. And we have got a strategic development team that’s focused on looking at things outside the footprint, and things that maybe a little bit different than overlooking at in our existing businesses, but we are also looking for our existing businesses to be creative and innovative as well.

Insoo Kim

Great. Thank you very much.

Beth Cooper

Thanks Insoo.

Operator

[Operator Instructions] Your next question comes from Spencer Joyce with Hilliard Lyons. Please go ahead. Your line is open.

Spencer Joyce

Mike good morning, congrats on another really good quarter here. Just to may be piggyback on Insoo’s questions, thanks for that the 17% kind guidance type figure for this year, I guess I wanted to ask kind about the sensitivity there specifically the language kind 17% or more. Should we be thinking about 17 as kind of a lower bound or does the additive to 17 merely reflect potential projects that could come up during the year. Just trying to want to understand if were working with more of a base case or kind of the midpoint there.

Beth Cooper

I think Spencer in terms of that question, from a CapEx prospective. At this point, any sizable CapEx project that we are going to add are really going to be impacting 2019, but we put the process of just given the growth that we been able to see on the unregulated side and the things that we are doing there and so there is an opportunity for it to be more slightly more than that.

But that will depend upon catching those growth opportunities also as well as I would say the fourth quarter in terms of the weather impact being second most weather sensitive. So I think as you are thinking about it, I would kind think about it as kind of that midpoint, but with those around it.

Spencer Joyce

Okay that’s helpful. Maybe a similar question can ask a different way, so as you are new in kind of your internal modeling and backed into that 17% figure, what were some of the points of uncertainty, maybe aside from the weather, I mean is there still any kind of wiggle room on tax or is that field pretty locked in there, I mean is there anything obvious kind of operationally that we might be able to look to during the year, just maybe a few of the uncertainty points.

Beth Cooper

I think for the most part on the unregulated side, we captured what we think the impact will be, but to that extent as you know that earnings in those business vary from that, those are corresponding tax impact, so to speak that could get to the bottom line or even deduct from the bottom line, depending upon where those commence. So I think we feel like we have got good estimates there.

On the regulated side, we are going in, we are discussing, where we are from a position standpoint with each of the regulatory jurisdiction, could there be something that comes out of that potentially and if so, we will certainly go through that with you. So I think we have kind of laid out, I think what we know today, our best estimate, but certainly depending on growth that comes in or any factors that change that could just slightly?

Michael McMasters

Spencer, what we are saying, if you go to the utility side of things, we are seeing more construction that we have seen in the past, it starting to ramp up. So there’s some things happening there that are positive. And then when you look at the unregulated side, we had some substantial growth in 2017 that because of the mark-to-market is getting masked.

And so that kind of growth makes a little bit tougher for us to - actually gives us an opportunity to exceed the 2017 more than going backwards would be compression of margins in the propane for example of other markets or whether you mentioned the weather.

But it’s really the opportunities that we can get from both the residential and commercial growth in our territories and the unregulated side of the business, but things that they are able to do that are just a little bit more flexible in the regulated side.

Spencer Joyce

Final, I guess kind of housekeeping question. The capital budget for 2018, 180 million or so. I know typically you will have coming a little bit under the capital budget outline kind of earlier in the years. Should we be thinking about that kind of the same way this year? Is that 180 sort of the upper band, and then we will see what we can put in the ground kind of within the contacts is that still kind of a fair way to go?

Beth Cooper

Typically Spenser when we start out the year. We will come out of the year with our base capital budget and then we actually will have some items that is carry over from the prior year that may further add budget, which will drive it up and then we typically come back down closer to the original capital budget.

So the number that you have right now with our original budget and I would say that’s a very good estimate of the likely amount that we will spent somewhere around there, because that does not at this point reflect some carryover dollars that are coming in some 2017 and moving to 2018. So I think that’s good for purposes of what you are going to factor into your models and it’s likely we are going to spend that amount this year.

Spencer Joyce

Okay that’s good. And as kind of fresher. So absent kind of those the major growth initiatives. What is sort of run-rate for your base capital or kind of maintenance capital if you will. From this point last year, I kind of had a note that it was 60 million to 70 million. Is that still pretty close or is that maybe - a little bit higher?

Beth Cooper

That’s pretty close. Still running about that level, when we look at our budget for the period of time that we have projected that’s still is an estimate.

Spencer Joyce

Okay, great. That’s all I needed. Thanks.

Beth Cooper

Thank you.

Operator

[Operator Instructions]. Your next question comes from Sarah Akers with Wells Fargo. Please go ahead. Your line is open.

Sarah Akers

Good morning. Just a question on PESCO. So on a percentage basis, it looks like gross margin was up over 70% in 2017. So can you expand on what drove that increase and if you consider that level of gross margin to be sustainable.

Beth Cooper

So, PESCO's gross margin actually came from multiple different sources through the year. If you'll recall in the beginning of the year, we talked a lot about, they participated in the Columbia Ohio Standard Choice Program. And there was growth that we had in margin that came from that program. Our legacy business in Florida also continue to have growth in that CNI portfolio and what we have been able to do there.

We added the ARM acquisition in August and not only did the ARM acquisition at incremental revenue just from that acquisition, but then in addition to that, our producer services business and some of our ancillary services actually increased, because of the market that opened up for us both in Ohio as well as in Pennsylvania, So, you know, it wasn't really just one area of PESCO that grew, it was really across the board in multiple different areas.

Sarah Akers

Got it, great. And then lastly, just as we think about Q1 estimates, how has weather been in January, in February in your service territory?

Michael McMasters

Well, January, was a very good month from a weather perspective in terms of having cold temperatures, in fact we probably had a little bit too much for a few days, but in February I think I was hearing that Florida might have been a record warm, February. And so I think here is probably a little bit warm than normal too in February, But, as we compared to last year I would think that we are colder than last year.

Sarah Akers

Okay. But so the 17% growth, so that’s based on normal weather and given the cold in January and maybe a little bit warmer in February, it doesn't sound like you are necessarily running all that different to normal thus far.

Michael McMasters

That's correct.

Sarah Akers

Okay, thanks a lot.

Beth Cooper

Thanks Sarah.

Operator

And your next question comes from the line of Nate Martin with Seaport Global. Please go ahead. Your line is open.

Nathan Martin

Hey, good morning guys. And congrats on another good quarter. I think most of the topics I was thinking about have kind of been touched on, so maybe just a couple of housekeeping items. I think that you mentioned about the $100 million debt this year, what was the timing on that? Did you mention that, I might have missed it.

Beth Cooper

No problem. One tranche we are required to pull down by May and that's for $50 million Nate. And the second one, which is also a tranche of $50 million, we are require to pull that down by November. We can always pull it down earlier than that, but those are the required timeframes.

Nathan Martin

Got It. Got It. And then, the other question I had was regarding tax rate, I think I saw in the K you are expecting the effective tax rate for this year to be about 27.5%. Is that something that you kind of see going forward or any colors you give on that?

Beth Cooper

Sure. So, right now in terms of the projections that we have looked at. I mean, I would say that's a fair and reasonable number to use. As unregulated businesses in certain states grow, for example, Aspire you know, to the extent Aspire grows and becomes a larger part of the portfolio, you would see that overall rate decline, because Ohio doesn’t have a state income tax, and so there is a couple of our unregulated businesses like that, so it could come off of that a little bit and the expectation would probably be more that it might move down slightly, but like I said, I think as a starting point that’s a great number to use as you think about 2018.

Nathan Martin

Got it. Perfect. That’s all for me. Thanks guys.

Beth Cooper

Thank you.

Operator

There are no further questions in the queue at this time. I would turn the call back over to Mike for closing remarks.

Michael McMasters

Thank you very much. Well I want to thank everyone for their continued interest in our Company. We remain committed to generate value for our shareholders. Wish all to have a great weekend. Thank you.

Beth Cooper

Thank you.

Operator

And ladies and gentlemen, this concludes today’s conference call. You may now disconnect.