Piedmont Natural Gas Company Earnings Call NUGGETS: Ongoing O&M Levels, Cardinal Pipeline

On Monday, Piedmont Natural Gas Company (NYSE:PNY) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Ongoing O&M Levels

Travis Miller – Morningstar: Going back to the O&M a little bit, I was wondering if you could give a little more detail on those expenses incurred in the quarter that might be more one-time or even for the full year that might be more one-time and what are we thinking about in terms of ongoing O&M levels?

Thomas E. Skains – Chairman, President and CEO: We had a one-time item during the quarter where we had a partial recovery of our Tennessee franchise fee it was about $0.5 million recovery. If you remember at the end of 2011 we took $1.5 million charge related to the uncollected portion of the Tennessee franchise fee and through the process before the PRA during fiscal 2012, we’ve managed recovery of about $500,000 of that. So that recovery is in there in the quarter. I’d say the rest of the trend is we continue to see expense higher than expected on the pension side. We did have a true up during the quarter which raised the pension expense little more than we had expected, but we’ve been doing better on the payroll front and that’s been intentional, we’ve been like I said in my prepared remarks we’ve been pretty intentional around being careful around the incurrence of payroll expenses during the nine months. I think hopefully it gives you some flavor. I am going to hold off and give any guidance on projections into 2013 as is our tradition once our fiscal year closes for ’12 we’ll get some guidance. So I think some pretty good color for fiscal ’13 we issue that most likely in November.

Travis Miller – Morningstar: Quick follow-up on that line, what was your O&M growth number embedded in your 2012 guidance?

Thomas E. Skains – Chairman, President and CEO: I think its 9% from year-over-year, in the guidance we issued back in November.

Travis Miller – Morningstar: Does that include some one-times that you knew were coming up.

Thomas E. Skains – Chairman, President and CEO: It included all that we had visibility for at the time. I don’t believe we included an expectation of recovery in Tennessee at the time.

Travis Miller – Morningstar: So that would offset in a little bit of the one-times kind of if I am thinking about a core O&M type growth number embedded in your thoughts for 2012 is that still in that 9% range give or take?

Thomas E. Skains – Chairman, President and CEO: I don’t want to give guidance out for ’13, but I think you’ll continue to see pressures across all corporate America on the pension side because of continuing lower discount rate from the year over period and there is usually wage and compensation pressure year-over-year I think those are just general trends.

Cardinal Pipeline

John Hanson – Praesidis: Just to follow-up on the Wayne County I see your slide there that has the contributions from Cardinal pipeline. Now, the $0.3 million is that the Cardinal pipeline extra margin or the whole project?

Thomas E. Skains – Chairman, President and CEO: So, what page are you on?

John Hanson – Praesidis: That’s on Slide 8.

Thomas E. Skains – Chairman, President and CEO: I think he is referring to the increased contribution from Cardinal due to Wayne County.

Karl W. Newlin – SVP and CFO: So, what’s the question about it?

John Hanson – Praesidis: Well, I’m just making sure that is indeed the pipeline part not the whole Wayne County project, right?

Karl W. Newlin – SVP and CFO: That’s right. That’s just the contribution from our ownership percentage in the Cardinal pipeline.

John Hanson – Praesidis: Establishing that now let me just make sure understand and that’s one quarter, it’s not catch up. So, was that kind of an ongoing per quarter or we should see that kind of a contribution from that extra throughput on that pipeline?

Karl W. Newlin – SVP and CFO: In general, yeah, so I mean it’s difficult to extrapolate for the full year, but in general that’s correct.

John Hanson – Praesidis: It’s not a one-time, not a catch up that’s my main theme.

Thomas E. Skains – Chairman, President and CEO: That’s right. It’s not a catch-up.

John Hanson – Praesidis: I’ll ask the question. I know we’re getting down to the Sutton project wrapping up anything beyond that that we’re seeing am I right?

Thomas E. Skains – Chairman, President and CEO: The question related to the status of the Sutton project?

Karl W. Newlin – SVP and CFO: Future.

John Hanson – Praesidis: Beyond that.

Thomas E. Skains – Chairman, President and CEO: Well, first, on the Sutton project, that project as I mentioned, this is Tom, is going very well. Construction has commenced. All the major contracts have been signed and key materials purchased and received. About 98% were out of way that project has been acquired and we’ve cleared about 90% already and the pipeline installation itself is about 40% complete. So, we feel good about that project and where it stands in terms of meeting our targeted in service date of June of next year. As far as the future pipeline expansion projects or sort of power generation is concerned we maintain a close contact and have a good business relationship with Duke Energy which as you know bought Progress Energy a few months ago. As they continue to execute their fleet modernization strategy we’ll continue to coordinate with them and see what additional services we can provide. We had nothing to announce today in that respect, but we’re maintaining close contact with them.

John Hanson – Praesidis: Okay. I did notice that when I compared the CapEx for power generation projects lives from the last time that and I know the amounts per year kind of go up and down different times, but it looked like things had extra $20 million here in ’12 and then we took $30 million off of ’13, is that timing again as we kind of move back and forth on these projects?

Karl W. Newlin – SVP and CFO: It’s Karl. For 2012 it is just timing as we refine the finality around the power generation CapEx between ’12 and ’13.

John Hanson – Praesidis: Then ’13 is down $30 million. So, are there other things that we kind of scaling back things next year for other reasons or is that just the more timing on your side?

Karl W. Newlin – SVP and CFO: No. It’s just timing of getting Sutton completed on time between our two fiscal years is all you are seeing there on the power gen.