Northwest Natural Holding Company
Q2 2010 Earnings Call Transcript

Published: 4 Aug 2010

[Operator:]

Good morning, and welcome to the Northwest National Gas second quarter and year-to-date conference call. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Bob Hess. Please go ahead, sir.

[Bob Hess:]

Thank you, Andrea. Good morning and welcome to our second quarter earnings call. Our earnings release was issued earlier this morning and is available on our website. As a reminder, some of the things that will be said this morning contain forward-looking statements. They are based on management's assumptions, which may or may not come true and you should refer to the language at the end of our press release for the appropriate cautionary statements and also our SEC filings for additional information. We expect to file our 10-Q by the end of the week. This teleconference is being recorded and will be available on our website later today. Please note that these conference calls are designed for the financial community. If you are an individual investor and have questions or comments, please contact me directly at 1-800-422-4012, extension 2388. Speaking on the call this morning are Gregg Kantor, President and Chief Executive Officer and David Anderson, Senior Vice President and Chief Financial Officer. Gregg and David have some opening remarks and then will be available to answer your questions. Also joining us today are other members of our executive team to help answer your questions. With that, let me turn you over to Gregg.

[Gregg Kantor:]

Thank you, Bob. Good morning, everyone and welcome to our 2010 second quarter earnings call. As we usually do, I will start the call off with an overview of the quarter and where we stand for the first six months of the year. Then I will turn it over to David to cover the financial details for the period. First, we reported strong second quarter earnings of $0.26 per share. This was due primarily to weather that was 25% colder than average and 49% colder than last year. Our year-to-date performance has also been good. In fact it has matched last year's results which benefited from record gas cost savings. Colder weather gave us a big boost, but we also continue to see positive benefits from our cost management efforts in operations. During the quarter, O&M expenses were down 6% compared to the second quarter of last year and 8% year-to-date. Part of that is due to the lower payroll expenses resulting from the downsizing efforts we initiated over the last few years. While those reductions were tough on our organization, it's clear today that it was the responsible action to take and it has put us in a much stronger position to navigate these challenging economic times. Also in the period, we were pleased to see a drop in bad debt expenses, whether it's creating flexible payment plans or finding appropriate energy and systems funding for customers. Our proactive and consistent outreach seems to be making a difference in this area. On the growth front, new customer additions increased slightly to 1% over the trailing 12 months period compared to 0.7% at the end of the first quarter, and we are now serving more than 669,000 customers. While this uptick is modest, there are some positive developments to mention that should continue to support new customer additions that contribute to revenue. In May-June, we announced to our regulators that we expect natural gas rates to be flat or slightly lower for the upcoming heating season. Barring any unusual movements in the gas markets, that's still the expectations for our August 31st file. With lots of rates rising in many Northwest communities, we remain optimistic about our competitive position in growth opportunities. During the quarter, we also saw industrial volumes and margins trend up, predominantly in the manufacturing sector. Three consecutive months of positive movement is certainly encouraging signs, but will have to wait and see if it's a sustainable improvement. Before I turn it over to David to cover the financials, I also want to give you an update on the Palomar pipeline in our joint project with France and Canada. During our last call, we discussed the news that Northern Star Natural Gas, the company that was pursuing the Bradwood Landing L&G terminal, had suspended work on the project and filed for CapEx having bankruptcy. Bankruptcy trustees' decision to assume or reject the Precedent Agreement Northern Star has with Palomar was originally scheduled for July. However, the bankruptcy trustees move for a 120-day extension and the bankruptcy court has not yet ruled on the motion. In the mean time, we continue to evaluate the potential impact of the bankruptcy and the project team is actually moving forward with efforts to secure shippers for Palomar East. Now the Northern Star bankruptcy will likely cause us to modify the project, we believe there remains a critical need for Palomar East. Today when the region hits big usage, the existing interstate pipeline is at maximum use. In our view it's a question of when, not if, additional pipeline infrastructure is needed to surf Willamette Valley and the rest of the Pacific Northwest. With the growing dependency on natural gas, the transition of a coal and the backup renewables in the Northwest, the reliability of the gas system becomes absolutely essential. Palomar East would ensure we have access to the additional diversified needed to meet future demand. With that end, FERC approval of the Ruby Pipeline positions Palomar to bring in more domestic natural gas supplies from the Rocky Mountain. On July 6, we send a letter to FERC provide an update on the project. The letter stated that Palomar may need to amend its original application by the end of this year to accommodate changes related to the outcome of commercial discussions and bankruptcy of Northern Star. As these issues unfold over next several months we will keep you inform. Now, I will turn it over to David and then come back in with an update on the status of Gill Ranch our storage project in Fresno, California. David?

[David Anderson:]

Thanks, Gregg, and good morning, everybody and welcome. As Gregg mentioned, second quarter results were strong due mainly so much colder weather during the period. Customer growth and reduced O&M expenses were other key drivers for the quarter. Let me provide you some additional details on both quarter and year-to-date periods. Results from our utility operations are typically low in the second and third quarters due to reduced usage of gas during the warmer months. That was not the case this quarter as we had a number of factors leading to higher results. As Gregg mentioned, weather was one key factor with temperatures well below normal in the later part of the quarter during our seasonal transition out of our Oregon weather normalization mechanisms that ends in mid-May. Earnings for the second quarter of 2010 were more than double 2009. Second quarter with net income of $6.9 million or $0.26 per share compared to $3.1 million or $0.12 per share in 2009. The company's utility operations, our largest segment generating net income of $4.6 million or $0.17 per share in the second quarter, this compared to net income of $400,000 or $0.02 per share last year. Total gas deliveries in the second quarter excluding gas storage for others were 233 million therms that's up 12% from 209 million therms in 2009 second quarter. The increase in usage was mainly due to colder weather and the slight rebound in industrial sector. As a result margin from utility operations increased by 11% to $67 million compared to $60 last year. Sales to residential and commercial customers were 120 million therms that's up 18% from 102 therms in the second quarter of last year, again due mainly the colder weather and customer growth. Utility margin from residential and commercial customers was $57 million compared to $50 million last year. Our weather and decoupling mechanisms in Oregon adjusted margin down by $800,000 in the quarter and $100,000 in last year's second quarter. Gas deliveries to industrial sales and transportation customers in the quarter were up 5% to 113 therms that compares to 108 million therms in 2009 second quarter. Margin was up 9% to $7.1 million reflecting a slight improvement in the manufacturing sector over last year, which is encouraging as Greg just mention. As many of you know our margin exposure in this area is relative low as approximately 85% of our annual utility margin comes from the residential and small commercial customer category, which is typically very stable. As noted earlier, we experienced significantly higher gas cost gains from our Purchased Gas Adjustment incentive sharing mechanism in Oregon during last years heating season than so far this year. Last year we were able to take advantage of low market prices as compared to prices set in the PGA. The combination of a higher sharing percentage per shareholders, declining natural gas prices and our ability to manage gas purchases using the storage assets resulted in a larger margin gain in the second quarter of 2009. This year with a lower sharing percentage and other factors second quarter 2010 gains were $500,000 compared to $2.6 million last year. In Washington, where we have about 10% of our customers, 100% of higher or lower gas costs are passed to the customers. On August 2, we notified the Oregon Public Utility Commission that we would be selecting a 90

[Gregg Kantor:]

Thanks, David. As we look at the second half of 2010, we know there's a lot of work ahead, but we feel good about the performance of our operations and the financial health of the company. We remain focused on maintaining excellent service and effective cost control in the core utility. At the same time, we will be working to secure shippers for Palomar East and completing the Gill Ranch storage project. Construction at Gill Ranch, the underground gas storage facility we are developing with Pacific Gas & Electric continues to progress towards in October in-service date. Completion of the compressor station is now at about 68% and 9 of the 12 injection wells have been drilled and I would say the reservoir data for those wells is positive. In addition, we've completed about 95% of the 27-mile pipeline that will serve the facility. Needless to say that the project team has been working very hard to make up those few weeks of rain delay that we had in January and also to address some challenges created this spring by some hot nesting along the pipeline route. Team has done a great job. In addition, in the second quarter, we hired several key staff for our storage operations. Given our progress to-date, we expect Gill Ranch to be completed in time to generate some storage revenue this coming winter. But the first full storage contract deal will commence April 1st, 2011. Closer to home, our Mist facility in Oregon continues to perform well, and remain uniquely positioned to provide storage services for the region, and in our view the transition from coal to gas fired electric generation will only enhanced the value of Mist. On that topic, there has been a growing intensity in the dialog between policy makers, environmental groups and electric utilities about transitioning the Northwest off core and that we believe closure schedules for both the Boardman coal plant in Oregon and the Centralia coal plant in Western Washington will be announced by year end. Needless to say, we are closely monitoring the discussion and will be accessing the potential opportunities this kind of development could have for Palomar for Mist storage and for our core utility business. Let me end by saying, as I look at first six months of 2010, I am pleased with our performance in the core utility and pleased with our ability to remain nimble as we pursue our non-utility projects. With that, I am happy to take questions.

[Operator:]

(Operator Instructions) Our first question comes from, Dan Fidell, of Brean Murray, Carret.

[Dan Fidell:]

Congrats first on a nice quarter, I guess just a handful of questions on my side. First, can you talk a little bit about the trend you see for O&M into the third quarter and fourth quarter? David, I know you mentioned that we should sort of expect a more normalized level of bad debt in to those next two periods, but just in terms of maintenance projects are general level of O&M as we go forward into the year?

[David Anderson:]

Yes, Dan. I can address that. We are down about 8% on the year-to-date basis. I would anticipate that we will come back a little bit. My guess on this for the year on a normalized basis will probably be around flat to maybe up just a little bit, but at the current run rate, we might actually be a little bit below last year's O&M levels. So, from the personnel perspective the employee count is still down, so that's a positive. I think we had about $1 million adjustment to bad debt this quarter, so some of that I think will turn around in the coming quarters. So, I don't have a percentage that I can give you, but I think you will see some level of up-tick in the next couple of quarters, but for the year, there is a probably a very good chance our O&M year-on-year will continue to be down.

[Dan Fidell:]

The next question just turning quickly to Palomar East, can you give us a little bit more color on where you stand in terms of signing up shippers?

[Gregg Kantor:]

Dan, it's Gregg. We have been working with all of the major utilities in the region. Our assumption is in our view that the Precedent Agreement with Palomar that Northern Star has is likely to be rejected by the trustees, which means West isn't going to built and the focus will be on the Palomar East, which will serve as a piece of infrastructure supporting the region's utilities and probably a number of the regions' utilities. We have been talking to them. I would tell you that there's probably two variables right now that drive their decision. One is, they are looking at their hierarchies, which call for lot more gas but there is the economic question. How quickly will the economy come back? I think that is a variable and they are sort of looking at that. Then the second is many of them, the electric utilities are supported both by Boardman and [Anderson's Trail]. So they are looking at what happens, how quickly are these plans going to be transitioned out. Boardman for example right now on the table there are proposals to close it in 2014 by the environmentalist. PGE has proposed 2020 and the Department of Environmental Authority in Oregon has proposed or asked PGE to look at 2018. So, you got 2014 to 2020. I think we're going to see a look more clarity as I was saying in my remark, a lot more clarity on what's going to happen to coal in the region by the end of this year, we'll know more about the phasing out of that. I think that issue combined with a little bit more look at what the economy looks like is kind of the deciding factors for those electric utilities.

[Dan Fidell:]

Okay. So maybe as we trend into the latter part of this year will have a little bit better idea in terms of whether the shippers go based on these macro issues that need to be worked out a little bit?

[Gregg Kantor:]

I think that's fair.

[Dan Fidell:]

Okay, great. Then last question from me and I'll turn it over. Just in general in terms of storage, maybe you can talk a little bit about where you see potential for as Gill comes online, further expansion of Gill and then potentially an expansion of Mist. Sort of where do things look like for the next I guess 12 to 18 months in terms of additional storage expansion?

[Gregg Kantor:]

Let me deal with Gill first. As you notice there is another 20 bcf potential at Gill and of that 20 bcf North West Natural will get five and PG&E will get 15, and we have sized the pipeline and the compressor stations to be able to serve that additional 20. So obviously, the costs are there, we are as anxious to get that on as anyone and I think the market place will dictate that and right now storage values are down somewhat. So it's sort of hard to predict but the incentive for both PG&E and for us will be to bring that on as soon as the market says it's valuable. That's where we are headed. On Mist, I'll tell you, both the coal issue and the fact that the Northwest is probably the most aggressive region in terms of wind, is driving a lot of conversation between the electric utilities and us about how to use storage in the Northwest to support the peak gas plants that are going to have to be built to back up all of the wind generation. Right now, in the Northwest, there is about 300,000 megawatts of wind. There is another 3,000 megawatts that have been approved and are in the process of being constructed and it looks like there maybe another 3,000 megawatts in the wings ready to come on. So the choice is that a lot of the utilities have now are signed up for pipeline capacity, which is a very expensive way to serve peak gas-fired electric generation or to figure out how to use storage services to support peak generation. Its an interesting dynamic because it really changes the value of the storage from what is the intrinsic value and extrinsic of the volatility issues around gas prices and how do you use storage to take advantage of volatility in gas prices to a question of how expensive is storage relative pipeline capacity, which is a different way of calculating the value of storage. So I guess I would just say I'm bullish about Mist, particularly given the kind of electric dynamics that are going on here, and particularly the winds driving additional peak demand for electric generation.

[Operator:]

Our next question comes from Michael Bates of D.A. Davidson.

[Michael Bates:]

David, you mentioned that your gas storage revenues were lower, because of lower optimization revenues. Are you expecting that to become a trend or what exactly was that that caused that?

[David Anderson:]

It's a good question, Michael. Actually for the quarter, we were down a little bit, but for the year-to-date period actually for Mist were up year-on-year for optimization revenues. So I'm still anticipating the year to be in good shape there. As Gregg mentioned, across the country, we have seen storage spread drop, and if that trend does stay in place, I think everybody that has storage operations will see the effect of that on a go-forward basis. Of course, a lot of that is driven by the shale gas plays, and the abundance of gas out there and of course, as Gregg just mentioned through the economy, you tell me where the economy is going to be, and I think that's going to have huge issue with that. The only thing I will point out with Mist] is that for those of you that don't know the Northwest has very little storage actually. So I think any kind of price movements or any kind of issues related will be much muted in the Northwest as compared to other parts of the country. So to kind wrap up here, Michael, one quarter does not make a trend. I still think, we are in good shape for the Mist assets for the year.

[Michael Bates:]

I was also curious as to what kind of a tax rate you guys might going to expect for the full year?

[David Anderson:]

I'm sorry when.

[Michael Bates:]

I was wondering if you are giving any idea to the investment community as to what tax rate you are expecting for the year?

[David Anderson:]

The effective tax rate for us, which is a little unusual, is a little over 40% right now. We are probably going to be in the 40% to 41% for the year and for those of you that follow companies it's a fairly high effective tax rate two reasons. One is, Oregon did have laws this last year that increased the corporate tax rate. I will remind folks that we get the bulk of that recovered in our [bill for in rights] adjustments. So even though our tax expenses are going op we are going to be collecting additional amounts from customers to cover that. The second piece of the tax rate being so high is the amortization of our 381 tax deferred assets. You and I can spend about an hour talking about those, but the reality is about a little over a year ago we adjusted those in rights and we are collecting those. So, even though our effective tax rate is higher, most of those taxes are being collected in rights. So, 40% to 41% for the year is the short answer.

[Michael Bates:]

Sure.Weather was the bigger factor for your quarter there recently ended and you mentioned that weather normalization shut up in mid May for you guys. When does that kick back on?

[David Anderson:]

The fact of that is that we are a little unique hence we guess, one of the first utilities who got decoupling, we have the weather normalization mechanism. Then we have decoupling that comes in after that and at the end you end up being decoupled. During this transition month and this is the only month of that this happened. It used to be October that got six to all back, now it's only in May. That we're exposed for a very short period time to weather, decoupling comes back at the end but it doesn't cover the full amount. For the period, basically around May 15, that's one thing shut off, so you have got bill starting on April 15 that don't have full weather normalization covered on those. That probably provided us around $0.07 or $0.08 a share a positive weather for the quarter. Now I'll remind folks that the first quarter had about $0.07 or $0.08 a share of negative weather impacts. Because if you remember, not all of our customers in Oregon are covered by weather normalization during the normal period, they can elect out of it, and about 10% of those customers do that, and then of course our Washington customers are not covered by weather normalization. Net were about flat on the year from a weather perspective, but this one month when we're not completely covered, and then June 1, Michael, as far more information that you want here is when full decoupling goes into place. You've got that period of about three or four weeks but you are not completely covered on those.

[Michael Bates:]

If I may, I'll just ask a couple of questions about Palomar. What is the Ruby project? I saw something in the press in the last couple of weeks that said that even though that is design to deliver in to the California markets conceivable that, they could be modified eventually to back hold gas northward. I took to that to mean that it could potentially compete with Northwest Natural thesis that Palomar is needed so that the region could have a second source of gas as you only have one now. Can you help me to understand because I know that you guys have always talked about the Ruby Pipeline as complementary to your plans?

[Gregg Kantor:]

You have seen the map. It takes gas from the Rockies to the Northern California, Southern border with Oregon. Our thesis is that you are going to see gas flows coming West, that allows gas to go up GTN and to be accessed by Palomar coming across the Cascades below the Gorge. Right now, all the gas, most of the gas that we get those either up comes out of Alberta and down the Gorge up that GTN line out of the Rockies. Rockies gas has been less expensive for us, but we don't have the capacity to bring it in, the pipeline capacity to bring it in. We see Ruby as being another straw out of the Rockies to the West, bringing gas up GTN over the Cascade into the Willamette Valley.

[Michael Bates:]

You still need Palomar to bring it into the Willamette Valley?

[Gregg Kantor:]

Yes, without Palomar, you can't get it into the Willamette valley.

[Operator:]

Our next question is from Jennifer Sireklove of McAdams Wright Ragen.

[Jennifer Sireklove:]

I had two questions. One was just a follow-up to Dan's O&M question. You emphasized the role of payroll expense in the decrease in your O&M this quarter. Could you remind me (a) the significance of headcount, payroll expense in the overall O&M figure and then (b) I am wondering how you see your headcount in terms of sustainability going forward and what would need to make you start hiring again, having bodies?

[David Anderson:]

Roughly, these are kind of rough numbers. O&M, roughly about 70% of our O&M costs are people, [SCE] related, I might be a little off a couple of digits there, but that gives you an idea how much is there, in terms of [SCE] count we're down below a thousand. If you back 2005, yes, three years ago, we were well over 1300. So you have seen the dramatic decrease that we have done over this three to four year period. Some of that, below a thousand right now, is probably temporary. Always have issues going on, so I would anticipate in direct nets and color here that we might jump-up a little above a thousand. But I think both Gregg and I feel, and if I know, our footprint is appropriate now. There is probably no further reductions on a go forward basis. We are going to be right around this thousand more growth period of time, barring other usual on that activities and obviously we are hiring a little bit for our Gill Ranch storage facility, but that's separate from the utility.

[Gregg Kantor:]

Maybe a little color at your question, Jennifer, about when we would add additional FTE, what we have tried to do with this minimum footprint is to create a model where as the economy comes back, as housing picks-up, that we are not in a higher back, additional employees inside the utility, but we will use contractors. We are hopefully staffed for the ongoing base lower economy for some period of time, and as we need additional help we'll bring in contractors to provide the support. I don't anticipate in a near future, any significant hiring whatsoever. But as David said, we are always hiring Call Centre Reps and that brings us up, and then we will resume. I think we will be floating around that thousand figure number for sometime to come, and I tell you, we dropped about a hundred physicians last year and David and I and Lea Anne Doolittle who is our Senior Vice President for HR were after going through the pain, reducing the size of this company. You are not going to want to see a quick back-up again, that's my commitment.

[Jennifer Sireklove:]

My second question just has to do back again to Palomar, little bit different take, obviously there is a lot of public protest against Palomar East. I am curious how you would characterize community attitude, stakeholder attitude towards the project particularly in comparison to the previous years and then just remind me what impact if any does that have on how the process goes forward?

[Gregg Kantor:]

I would say, this is just my gut telling you, I haven't quantified that. But I would tell you that of the controversy that we get, I'd say two-thirds of it, have been focused on L&G the facility. There is kind of a national effort that arrived in Oregon and there is a lot of environmental group here who oppose liquefied natural gas, and it was focused on the Northern Star project. They view the Palomar West and all Palomar sort of a wait up to bring in gas and that would eventually make its way to California, and that hold I think a lot of the controversy in. If the trustees reject the PA in West side Palomar disappears, I think they loose about two-thirds of that controversy. Going over the Cascades, it still going to be controversial, there is no doubt about it. What a National Forest with wilderness areas that we are avoiding the wilderness areas. We believe we've got mitigation plans that are very, very proactive and aggressive and it will up to us, and I think we have a commitment to make sure that it is the most environmentally sound pipeline you can build. Having said that, there are trends of lots of drainages and trends of lots of things that are focusing on the Cascades in any development in Cascades, I think the electric transmission lines that are proposed will also have the same problem. The process is a FERC process, and it is as has been proven around the country. FERC will take into account the environmental issues. We'll have public hearings, but usually ends up making sure that the project does the right thing by the environment and the project move forward, so we are optimistic that we can get the permit and we are working with environmental groups, working with the Federal agencies to make sure that the alignment is done in environmentally sound ways. But short answer, I think with LNG to disappearing, I think you lose some of the opposition, but not all of it.

[Operator:]

Our next question is from John Hanson of Praesidis.

[John Hanson:]

Just a couple of questions. First one is a follow up on the weather normalization and decoupling. Just to make sure I understand. So, the May 15th to May 30th window created this aberration here to this year, is that the way to look at three or four week period, May 15th to May 30th?

[Gregg Kantor:]

There's two things. On weather, let me start on the macro level. Our Washington customers are not covered by weather normalizations, so anything that's colder or normal, which represents about 10% of our customers' is always going to have a direct effect on margin. Then there's Oregon customers that elect out of weather normalization, so roughly between 15% and 20% of our customers on an annual basis are what I would consider weather-sensitive, and we could see additional margin or be hurt by margin during that period. During the May month, it gets a little exaggerated in Oregon on weather-only just because of it when mechanisms timing wise drop off a little bit, and so when we had the abnormally cold weather in May of this year, it did provide a little bit of additional margin just from that timing period when bills are rolling off weather normalization before we go to full decoupling in June. Obviously, the Washington customers, they provided additional margin because they are not covered by weather. So it's a little bit confusing but May is our month when we have a little bit more exposure. That probably, just May alone, probably amounted to anywhere between $0.03 and $0.05. So, it's not a huge amount, but it does have an impact when temperatures especially as they were here much colder than normal.

[John Hanson:]

Yes, so it's all of May then that's potentially expose for this a little.

[Gregg Kantor:]

Yes, roughly. That's basically correct.

[John Hanson:]

Way I was kind of looking at it as you mentioned in your release that that weather normalization giveback was $800,000, but it looked like the change in margin was more like on the order of $8 million, and I was trying to do a little bit of calc on that to see how much. I mean you attribute it most of that to weather, so I was trying to figure out whether that was more like quite a bit more than $0.03 to $0.05, let's put it that way. Just trying to make sure there's other factors.

[Gregg Kantor:]

As I indicated weather for the quarter is around $0.08, positive. And in the first quarter, it was about an $0.08 hit. So, we are just about neutral on weather. In fact, if you wanted the net income numbers on weather for the quarter, this is post that, little over $3 million in the quarter from weather and then we had a hurt of about $3 million in the first quarter from weather. So, again, it's about flat on the net income basis.

[John Hanson:]

So, on the calendar, only this May period is what we have that calendar kind of.

[Gregg Kantor:]

Yes. That's correct.

[John Hanson:]

Let me ask then just briefly if I could. As you mentioned some positive signs about manufacturing loads and all that and you were a little bit cautious. What particular industries are you seeing the recovery in, and which ones are you kind of cautious on?

[Gregg Kantor:]

This is just in general manufacturing. We don't have a lot of manufacturing in the state overall, so I don't have specific industries to point out to you at this time.

[John Hanson:]

Would that include power generation?

[Gregg Kantor:]

No. Power generation is not in that. If a power generator gets gas from us, they will likely only be paying us transportation charge. They will be buying directly. The can elect sales service from us, which has a margin impact on us, but most of the time if the they using our pipeline, they just pay a transportation charge, so that's not covered in that customer class.

[Operator:]

We have a follow- Michael Bates location with D.A. Davidson Jim Bellessa – D.A. Davidson This is actually Jim Bellessa. You got a very strong quarter beating the street consensus by $0.15 to $0.20 a share, and yet you didn't move your guidance. You perhaps had anticipated such a strong quarter, or I didn't, or did you expect such a strong quarter and if you didn't, why didn't you raise your guidance?

[David Anderson:]

I'd appreciate that, Jim. This is David. We did have a strong quarter. Basically, the quarter was strong weather-related. Remember first quarter was hurt by weather, so again weather ends up being a little bit of net neutral. We are probably a little bit of head on the year, where we anticipated on being. But, again, I think you are going to have some of that bad debt expense turnaround in the second half a little bit. That should put us right back in to the range, and we will be in the range at this point overall barring some unusual event that I'm not seeing.

[Operator:]

This concludes our question-and-answer session today. Does the management have any closing remarks for today?

[Gregg Kantor:]

Let me just close with thank you everyone for spending some of your day with us and we will be talking to you again very soon.

[David Anderson:]

Thank you, guys.

[Operator:]

Thank you. Thank you for joining us. The conference has ended. You may now disconnect.