UGI Corp (UGI) 2018 Q1 法說會逐字稿

Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the UGI Corporation and AmeriGas Partners' First Quarter 2018 Earnings Call. (Operator Instructions)

I will now turn the call over to your host, Will Ruthrauff, Director of Investor Relations. You may begin.

Thanks, Krista. Good morning, everyone, and thank you for joining us. On the call today are Hugh Gallagher, CFO of AmeriGas Propane; Kirk Oliver, CFO of UGI Corporation; Jerry Sheridan, President and CEO of AmeriGas Propane; and John Walsh, President and CEO of UGI.

Before we begin, let me remind you that our comments today will include certain forward-looking statements, which management believes to be reasonable as of today's date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict. Please read our earnings release and our annual report on Form 10-K for an extensive list of factors that could affect results. We assume no duty to update or revise forward-looking statements to reflect events or circumstances that are different from expectations. We'll also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available in the appendix of our presentation.

Now let me turn the call over to John.

Thanks, Will. Good morning, and welcome to our call. I hope that you've all had a chance to review our press releases reporting first quarter results for UGI and AmeriGas. We had a strong Q1, as each of our domestic businesses contributed higher adjusted net income than in fiscal '17. Weather was slightly warmer than normal in each of our businesses, but Q1 domestic weather was colder than Q1 fiscal '17. Our strong performance can be attributed to the return of more normal weather in the U.S., the impact of tax reform and the continuing earnings contributions from our new investments and acquisitions.

I'll comment on our key activities and market developments in Q1, then I'll turn it over to Kirk, who will provide you with a detailed overview of UGI's financial performance, including a review of the beneficial impact of federal tax legislation.

Jerry will review Q1 for AmeriGas, and I'll wrap up with an update on our strategic initiatives. I am, once again, pleased to report record earnings for UGI. Our Q1 GAAP EPS was $2.07, while our adjusted EPS was $1.01. That adjusted EPS exceeded the prior record adjusted Q1 EPS of $0.91, which we reported last year. Both quarters have been adjusted for the mark-to-market valuation of unsettled hedges and other items, most notably the one-time impact on accrued and deferred tax liabilities resulting from tax changes, which Kirk will cover later. The impact of tax legislation was noteworthy in the quarter, as the net impact of a significant and permanent positive change in our U.S. tax rate and a smaller, temporary negative change in our tax rate in France contributed $0.09 to our EPS growth. These strong results reflect the impact of near-normal weather in each of our key service areas and also demonstrate the underlying strength of our businesses.

In addition to the strong earnings performance in the first quarter, I'd like to comment on the significant progress we made on a number of strategic projects and activities. Our teams, as always, maintained their focus on meeting our critical commitment to our customers in the communities we serve, while also ensuring that our new capital projects and acquisitions meet or exceed their performance targets. I am happy to report that we performed well on both fronts in Q1. We achieved several critical milestones on projects that will lay the foundation for our future growth. The PennEast partnership received its final FERC certificate on January 19 for the much-needed pipeline project. PennEast will provide critical new pipeline capacity and enhanced access to affordable Marcellus gas to residential customers in Eastern Pennsylvania and across the state of New Jersey.

We're excited to start the next phase of our activities, which will involve close collaborations with the state and local agencies in Pennsylvania and New Jersey. We expect construction of PennEast to commence by the end of 2018.

Our new Manning LNG liquefaction unit in Northeast Pennsylvania, which came onstream in July, has been working at peak capacity from day 1. Demand for LNG has never been stronger, driven by increased peak-day demand for most gas LDCs, and the significant challenges faced by capacity-constrained areas in the East and Northeast, where LNG has become an essential element of the supply portfolio. Our Manning investment was timely, is important for consumers, and is paying off during the strong start to the winter heating season. Our utility continues to make great progress with its mission to replace [in-force] critical infrastructure across our system, while also investing in growth projects to extend our networks to unserved communities. We continue to grow the customer base at our gas utility with almost 3,800 new residential heating and commercial customers added in Q1. Our infrastructure replacement program for cast iron and bare steel remains on track, with over 65 miles of pipeline replaced during calendar year 2017 and a similar target for 2018.

In addition, this month we filed our first rate case for UGI Electric in 22 years.

AmeriGas had a solid quarter with adjusted EBITDA up year-on-year. The colder, more normal weather underscores conditions where the scale and reach of AmeriGas is critically important, as we quickly redeploy our extensive network of supply assets and our distribution teams to the impacted areas to ensure continuity of supply. Jerry will comment in much more detail on AmeriGas's Q1 performance in a few minutes.

Our International team was faced with weather in Q1 that was 7% warmer than last year. While our Q1 earnings for International were below last year, our performance represents an approximately 50% increase from the average Q1 adjusted net income reported for our European business in the prior 5 years that preceded our record FY '17 earnings. This significant growth over the past 5 years can be attributed to our successful acquisition program in Europe and the strong execution focus by our teams, which has enabled us to deliver the targeted returns for those strategic investments.

Speaking of strategic acquisitions, our integration of the Finagaz business remains on schedule, and we expect the integration process to conclude this fiscal year.

I'll return later on the call to comment on our strategic initiatives, but I'd like to turn it over to Kirk at this point, for the financial review. Kirk?

Thanks, John. And good morning, everyone. As John mentioned, UGI had a strong earnings this quarter with adjusted EPS of $1.01 and GAAP EPS of $2.07. GAAP EPS included a significant one-time benefit related to U.S. tax reform, which I'll discuss in just a moment.

On this slide, we've laid out the adjustments to GAAP results. Starting with GAAP EPS of $2.07, we back out $0.03 for unrealized gains on commodity derivatives, and add back $0.01 after -- of after-tax integration expenses associated with the Finagaz acquisition. The 2 largest adjustments were to remove one-time benefits related to reductions in French and U.S. corporate tax rates, which I'll address in more detail on the next slide.

The tax adjustments were due to new tax legislation that both the United States and France enacted in December. In the U.S., the Tax Cuts and Jobs Act reduced the federal corporate income tax rate from 35% to 21% effective January 1 of 2018. Due to our September fiscal year end, UGI's current fiscal year will be subject to a blended rate of 24.5%, and after this fiscal year will be subject to the 21% rate. In connection with this legislation, we are estimating a one-time P&L benefit of $166 million or $0.94 per share due to the revaluation of our accrued deferred tax liabilities.

The French legislation increased our FY '18 tax rate in France to 39.4% from 34.4% and reduced the rate to 25.8% beginning in our fiscal year 2023. In connection with this legislation, we revalued our deferred income tax assets and liabilities in France and realized a one-time income statement benefit of $17.3 million or $0.10 per share. Both of these one-time items have been excluded from our adjusted results. In addition to the impacts from the revaluation of deferred tax assets and liabilities, the respective changes to corporate rates due to these tax reform measures will lower our fiscal '18 income tax expense. For the current quarter, the lower U.S. rate reduced income tax expense by $20.4 million or $0.12 per share, while the higher French rate decreased net income by $3.9 million or $0.03 per share. As John mentioned, on a combined basis, the net contribution to earnings this quarter was $0.09.

For the full fiscal year of '18, we estimate that the net benefit to adjusted EPS due to these tax changes will be approximately $0.15 to $0.25 per share. One key factor in understanding the likely impact will be getting more information from the Pennsylvania PUC as to how it expects to treat the benefits.

Before I get to the individual business unit results, I wanted to comment on the waterfall shown on Slide 9. This slide provides a walk-forward from the prior year quarter, shows the net impact of the significant tax items and breaks out the impact by business unit. Beginning with the prior year adjusted EPS of $0.91, we have a negative impact of $0.03 related to receiving a smaller tax refund in France in this quarter versus the prior year. Moving to the right, you can see the $0.09 tax benefit related to the U.S. and French tax legislation that I discussed on the previous slide, as well as the detail by business unit. The cumulative benefit attributable to AmeriGas, Midstream & Marketing, UGI Utilities and Corporate & Other of $0.12, as shown on the prior slide, is offset by the $0.03 negative impact of the French tax legislation. Net of both of these tax items, the core business operations of UGI drove a $0.04 increase over the prior year, as shown in the second to last column on the slide.

I will now run through the Q1 results for each of the businesses. Turning first to AmeriGas, volume was flat to last year as weather that was relatively normal but colder than last year was heavily weighted to the last week of the quarter, which pushed volume into the second quarter. Adjusted EBITDA was $194 million, which is higher than the prior year. The prior year results include a one-time noncash charge for the correction of a previously recorded gain on asset sales that reduced EBITDA by $8.8 million. Jerry will review AmeriGas in more detail in a few minutes.

UGI International contributed $84.5 million in adjusted income before taxes, a $7.8 million decrease over last year, as higher margin, driven by the DVEP and UniverGas acquisitions, was offset by weather that was 7% warmer than the prior year. As you can see, the adjusted income before tax excludes costs associated with the integration of Finagaz. This quarter adjustment of approximately $2 million is significantly lower than the prior year, as we're nearing the completion of integrating the 2 businesses.

Turning now to the natural gas businesses, Midstream & Marketing posted income before taxes of $52.6 million, about 7% higher than the prior year. Total margin is up approximately $11 million or 14%, primarily reflecting higher natural gas gathering margin from our new Sunbury Pipeline and peaking margin reflecting growth in that business and the benefit of weather that was 6% colder than the prior year. Operating expenses increased, reflecting higher employee-related expenses and greater natural gas gathering and peaking activity, while depreciation was higher due to the expansion of our pipeline and peaking assets.

The Utilities is reporting income before taxes of $85.4 million, about 18% higher than the prior year on weather that was 6% colder than last year. Total margin increased $19.4 million, primarily reflecting higher core market margin in addition to increased large firm delivery service margin. In addition to the weather, core market margin benefited from higher base rates at our P&G utility, which took effect on October 20, 2017, and higher large firm delivery margin. Operating expenses and depreciation increased about $5.5 million on a combined basis, largely due to higher increased capital expenditures as well as higher distribution expenses.

That concludes my comments on the quarter, and I'll now turn the call over to Jerry for his update on AmeriGas.

Okay. Thank you, Kirk. And good morning, everyone. For AmeriGas, adjusted EBITDA for the first quarter of fiscal 2018 was $194 million, compared to $185 million in the first quarter of last year. Weather in Q1 was 10% colder than last year, however, this was not a full first quarter trend with extremely cold weather being very late in December, particularly in the East and southern regions of our nationwide footprint.

The first 3 weeks of December were actually 14% warmer than last year, but the final week of December was 60% colder than last year, with record temperatures in many areas. Excluding the last week of December, weather for the quarter was 4% colder than last year. Retail volume for Q1 was essentially flat with last year at 305 million gallons due to fairly uneven weather throughout the quarter. Customer call volumes received by AmeriGas were essentially flat through the second half of December until December 29, when we saw a 40% spike in call volume compared to early December call volume. I'm providing all this detail because one would expect the colder temperatures in December to have significantly affected volume, but the timing of the weather was really to the benefit of January, given the lag between customers placing orders and the actual deliveries.

Much of the country east of the Rocky Mountains has had continued cold weather in January. And we're seeing volumes that are substantially higher than last year. The western part of the country has remained warm. Average propane costs at Mt. Belvieu increased 64% when compared to the first quarter last year; however, it's good to see propane costs remaining stable throughout this period of extremely cold, bouncing around the $0.90 to $0.99 range at Mt. Belvieu. Currently propane is about $0.86.

Despite the higher propane costs, overall margins were up slightly from last year. Operating expenses were also up slightly from last year. Our service levels have been strong, though challenged in some geographies with railcar delays. However, our fleet of 250 transport trucks is allowing us to outperform many competitors in terms of servicing customers and getting propane where it needs to be.

This graph shows you the AmeriGas transport fleet. Each green dot is a transport truck. First is the Northeast and second is the Southeast. We've moved significant transport assets eastward to keep service levels high while the West experiences more mild weather. We also have activated our AmeriGas Airborne driver fleet where we share drivers among our 650 locations. And as a result, we've added 70 additional drivers responding to neighboring geographies that need assistance.

Now turning to our growth [russ]. AmeriGas Cylinder Exchange program is experiencing solid demand with volume up 8.9%. Our National Accounts program also experienced a solid quarter and added new business. Volume was up 6.5% quarter-over-quarter. We have made no acquisitions so far this year, and we're pleased to see the sustained cold weather pattern, which will significantly bolster January, February and the rest of Q2 results.

Finally, I'm personally thankful to our 8,500 AmeriGas colleagues who are working very hard in very difficult conditions to serve our customers, keeping houses warm and businesses running.

Now I'll turn the call back over to John.

Thanks, Jerry. As I mentioned in my earlier remarks, we were pleased with our achievement of record earnings in Q1. In addition to our earnings performance, the first quarter was noteworthy in several other respects. The cold weather experienced in the eastern half of the U.S. in very late December and early January resulted in record natural gas demand. The American Gas Association reported that a single-day consumption record for natural gas of 147 billion cubic feet was achieved on January 1, 2018. This was over 6% above the prior record single-day consumption level set in January 2014. UGI Utilities also experienced record sendouts on January 4, 5 and 6. Sendouts on these days were 7% to 14% above the record sendouts achieved during the polar vortex of 2014. This unprecedented demand was recorded in spite of weather that was slightly warmer than the coldest days of the vortex. As a result of this peak demand, pipeline capacity in the mid-Atlantic and Northeast was strained. While we were extremely pleased to see the strong natural gas demand in those peak periods, the market impact of that demand was significant, with spot gas and power prices rising dramatically. As an example, delivered natural gas prices in New Jersey were over 30x higher than supplies in the Pennsylvania production areas. During the 10-day period of extremely cold weather in late December and early January, the total cost differential between gas delivered in New Jersey and gas that PennEast could have accessed in the Marcellus totaled more than $300 million. This volatility highlights the need for continued investment in natural gas infrastructure to support the continuous growth in demand from the residential, commercial, industrial and power generation sectors.

As the record peak days of early January demonstrate, there is no slowing of demand growth for natural gas. For that reason, we were pleased to receive the FERC certificate for PennEast, which will deliver incremental new pipeline capacities -- capacity to areas that badly need that capacity. We are also committed to seeking opportunities to expand our existing midstream system in the Marcellus. Our network of pipeline storage in LNG assets and our geographic location on the eastern edge of the Marcellus positions us to play a major long-term role in addressing this critical infrastructure need in the mid-Atlantic and Northeast.

As I noted earlier, the timing of the recent extreme cold weather spanned from late December through early January, so our teams are off and running in Q2. Our new assets, including Manning LNG and the Texas Creek gathering systems, which were acquired late in fiscal '17, are performing very well and enabling us to take advantage of opportunities that arise during periods of volatility. Our LNG capability has been critical to our Midstream & Marketing portfolio and we'll be strengthening that network this quarter with the addition of the Steelton, Pennsylvania LNG storage and vaporization unit. This investment at Steelton increases our local peaking capacity and enhances the overall flexibility of our LNG network. We've been heavily utilizing that network over the past few weeks as demand has peaked in the Northeast, and we believe we're well-positioned to continue to benefit from our unique position in the months ahead.

The outlook for continued investment in growth remains strong for our Utilities business. We're deploying record levels of capital to support our growth and infrastructure replacement programs. As I've noted on our prior calls, we expect our total capital spend at Utilities to exceed $1.2 billion over the next 4 years, a substantial increase over the preceding 4 years. Our goal is to ensure continued access to low-cost natural gas for our core customers and provide access in previously unserved areas of the commonwealth.

AmeriGas enters Q2 with momentum from the strong demand generated by the turn to colder weather at the very end of Q1. Jerry and the team (technical difficulty) a great job of utilizing enhanced distribution, logistics and customer service tools to improve our customer service performance while reducing our cost to serve.

Looking at our most recent acquisitions in Europe, we're very pleased with the performance of DVEP, the power and natural gas marketing unit in the Netherlands; and UniverGas, our initial investment in the Italian LPG market. We're pleased with the strength of the businesses we acquired and the high-quality teams that have joined UGI International.

Our LPG businesses are crucial contributors to the strategic commitment of UGI. They provide earnings growth and significant free cash flow for the company. In short, they help to fuel the growth engine that is powering UGI's performance to record levels.

As Kirk highlighted in his remarks, the recent tax legislation will have a significant, positive impact for UGI. We've provided you with an estimate of that impact in fiscal '18, and we're excited about the long-term positive impact of these changes. The changes in tax law benefit companies who consistently invest in growth opportunities and also reward companies that have been prudent in managing their balance sheets. UGI fits both of these descriptions and will benefit in a meaningful way from these changes. We remain excited about the opportunities that lie ahead for the company. As I've noted several times in recent years, we're benefiting greatly from the diversity of growth opportunities that our teams are pursuing and our path forward has never been clearer.

With that, I'll turn the call back over to Krista, who will open it up for your questions.

(Operator Instructions) Your first question comes from the line of Mirek Zak from Citigroup.

Regarding the new tax rate environment, do you foresee any potential rate cases impacting your business in the future? Or do you have moratoriums in place from your recent rate cases and rate filings that protect you from anything like that?

We don't have any moratoriums in place, and we have a cadence based on returns in the businesses for filing of rate cases. So as of right now, there's no changes to that cadence, and really, we await guidance and feedback from the Pennsylvania PUC in terms of their perspective on the impact of the tax legislation.

Okay. And now shifting to PennEast. Has that in-service date moved at all? And now that you're working with -- focusing [out] with the states and local agencies to move forward, what do you expect to spend on PennEast this year?

We're moving forward into that phase. The construction is expected to start by the end of the year. I don't have off the top of my head the number that we'll spend in calendar 2018 on the project. We'd have to look at that and answer that question. Obviously, the significant spend will ramp in 2019, when we actually -- really get into the most significant stages of construction.

Okay. And the in-service date remains the same right now?

Yes. End of calendar of 2019.

Okay. And just lastly, on the AmeriGas Propane volumes remaining relatively flat despite colder weather, can you give some more color around how customer tank levels were entering the season, such as, did they have higher tank levels entering, allowing them to push off refills into 2Q, did that play a part at all?

Yes, very good question. And certainly, yes. We looked at that pretty carefully. In fact the last 2 warm winters have had us -- in 2 years consecutively coming into the fiscal year with customer tank levels that were, in fact, higher. So your order pool is a little smaller, but as I mentioned, the cold weather really came in vengeance at the end of December and has led to some really good volume in January. There's a delay between customers ordering and the delivery cycle, but just as an example through last Friday, the weather in January was about 13% colder than the prior year and our volumes will be approximately 20% higher than last year. So we're almost kind of overearning in January, but it's the December hangover.

Your next question comes from the line of Ben Brownlow from Raymond James.

Can you just -- can you talk about the historical monthly volume contribution to the March quarter? Just thinking about the -- you mentioned volumes up 20% basically kind of through January year-over-year. Can you just talk about, historically, where you see the monthly contribution -- and obviously that varies pretty dramatically with weather, but just trying to get an idea of the monthly contribution on volume perspective?

I think roughly -- and this is rough numbers -- I think January has about 40% of the degree days in the quarter.

That's right.

They have January, February are at somewhat similar level, and in February then it tails off. So roughly 40% of the degree days, which is a good placeholder for volume impact, is January.

And February looks -- [so far] February looks good, March is still a question mark. So we'll have to see how the whole quarter plays out.

Good. And on market share on Slide 5, Jerry, the -- it appears you've successfully reallocated assets and labor to geographically match demand. I understand one of your competitors reportedly had difficulty making timely deliveries. Just -- can you just talk about how you think market share shifted, if at all, in the quarter?

Yes. Hard for us to judge that or speak to that. I think a lot of the industry struggled. We're blessed with all the assets that we do have that we're able to move things around, and we're in a business where we're competing against a lot of kind of mom and pop independents that just don't have that kind of flexibility. So it's times like this, and John mentioned it in his remarks, that our supply chain and the control over it really helps us in cold winters like this.

Great. And just one last one for me on the unit margin for propane. Can you talk about what you're seeing on the competitive landscape in terms of pricing? And is there any sort of pricing or inventory dynamic in play that we shouldn't anticipate that historical seasonal improvement sequentially in unit margin?

Yes. And we're really pleased, we've had pockets, as I mentioned, some railcar delays but generally, across the country, we're not seeing extreme shortages. It's just that [half] occurring in pockets. And the really good news is that propane cost has been pretty stable. So we've seen it bouncing around in the 90s, now it's dropped down into the 80s. This is so different than the polar vortex where we saw the huge spikes and that created all kinds of pricing issues where customers just don't understand what's going on with their bills when propane spikes like that. But since we've been pretty stable, I don't think there's customer surprise with the pricing.

Your next question comes from the line of Chris Sighnolfi from Jefferies.

John, really appreciate the way you guys laid this out in terms of the tax impacts, both nonrecurring and recurring. We've had a bunch of companies do that. I think, this was clearer than most. I do have 2 questions related to it though. First is -- sort of follows up on the first question about -- what assumption did you make, I guess, in the '18 net impact with regard to any of the potential giveback on the regulated assets? Are you assuming that you don't capture the delta there? Are you assuming that rate case action effectively bleeds that out or something other than that?

Well, the range that we provided is sort of an indicator of the uncertainty and us awaiting guidance and input from the PUC drove the fact that this is a range that we gave in terms of the impact as opposed to a specific number or a much tighter range. So we're -- we and the other utilities in Pennsylvania will be speaking with the PUC and discussing how this impacts and getting their perspective and we'll go from there. So -- but if you look at that range, you can (technical difficulty) [beak] what the impact will be depending on the action that the PUC takes.

Okay. So the range itself is primarily driven by the delta and outcomes with regard to the regulated utilities?

That's the most significant impact thus far.

Yes. And the first quarter assumes the benefit at the utility. So we're -- we haven't assumed any kind of refund or anything yet for the first quarter.

That's helpful, Kirk. And then, I guess, with regard to -- your elongated guidance with regard to dividend policy has been one around payout ratio, and I've looked -- I've paid attention to this over time, for you and for others, there's been this delta between the cash tax rate you're paying or have paid over, let's say, the last 5 years versus what we've seen reported on the income statements. So I'm just wondering how the change in tax policy both here in the States and in France sort of affect not only the earnings line but also cash tax obligations? And then, I guess, the real question is just what that means in terms of how we should interpret a step up in EPS based on tax change versus maybe how it interfaces with your dividend policy?

Sure. So the timing of this is good. It's in the spring of each year that we review policy -- dividend policy with the board and look forward. So the tax team, as you can imagine, has been working very diligently over the past weeks here. And looking at both the earnings impact and the cash impact, and we're still working on the cash impact. But over time, over the midterm certainly, this becomes cash-positive. There are some puts and takes in the shorter term. But that will all factor in. It's a positive development, it will all factor into the discussions we'll have in the spring with our board on dividend policy. And as you know, over time, as our position changes, we update and revise our dividend policy based on the changing conditions in the business. So we've got a lot of work still to do, particularly on the cash impact of this, and then we'll be reviewing that with our board in the spring, and we'll come out with our policy -- any updates -- shortly thereafter.

Okay. Understood. I have 2 other questions, if I could. One just relates -- you had mentioned you released the recent rate case filing on the electric side. Obviously, we understand that you've had some changes on the gas side as it pertains to some of the investments you've been doing on infrastructure integrity and then just with customer growth. But can you talk at all, John, about maybe what drove you into the rate action on the electric? I know that business is quite small, but any framework for that would be helpful.

Well, it's -- yes, I think Chris, it's just continued investment over time is certainly nowhere near the level of investments that we're making in the -- in our gas business because the electric utility is about 10% of the Utilities business if you look at customer counts and things. But we've been doing the same thing in the electric division, investing in infrastructure over time. It's a great electric utility, if you look at its operating performance, it's -- if you look at the metrics that are used in terms of service reliability, it's an exceptionally strong operational performance and a lot of that's been enabled by continued investment to reinforce our system. And we've just hit a point now after 22 years where we qualify to file a rate case to make sure we're earning -- properly earning on that capital that's been invested over the last couple of decades. And also, filing the rate case now enables us to qualify for DISC in the electric -- for the electric utility, which is the last of our regulated units that isn't utilizing the DISC.

Okay. And is there -- John, is there a timeline you guys have put forth that you expect a decision in regard to that rate case, is there anything sort of legislatively prescripted -- prescribed -- [that you see]?

Typically, it's -- we typically file our rate cases in -- right around this time of year, and the PUC will take action in -- obviously, they drive the timeline. In many cases, they'll sort of suspend the rate case, so to speak, for a period to allow the parties and the intervenors to discuss and hopefully, reach a settlement and typically, we're looking towards the end of the fiscal year for that process to be completed and new rates to go into effect at the end or more commonly at the beginning of the new fiscal year. But again, that's -- the timing is entirely driven by the PUC, but that's been our experience.

Okay. And one question for Jerry if I could. Jerry, I appreciate the comments on the cadence of volumes tracking weather demand. You had mentioned briefly some railcar delay issues and sort of talking about the difference between this weather -- this winter's weather dynamic versus the polar vortex. But I guess, if I look at some of the EI datasets in terms of propane inventories regionally, there are some areas that look quite tight, and so I am just wondering if you are seeing anything that causes any concern across your business? Obviously, you guys have capacities that some of your peers don't, so -- we saw you exercise some flexibility. Last time there were no shortages, and I'm just wondering if there's anything out there that we should be paying attention to?

Well, it's a strange dynamic this year, because the West has been very warm, so you've got a whole chunk of the country that isn't consuming propane. So we're moving it around. I can't tell you that it's easy. We're scrambling and we're keeping up with it. But when I mentioned pockets, it keeps moving around. So we've had problems in the Northeast. Now that's settled down. Now we're having problems in the Southeast. So we have to just keep pivoting and moving assets around, and it's at times costly to do so because you're incurring all that transportation, but job 1 is to make sure our customers are in propane, and so far, so good.

Your next question comes from the line of Stephen Huang from Nereus Capital.

I had a question here related to the tax policies. So in 2018 you said you were assuming for the U.S. tax 24.5% and then it drops to 21% in '19. Is there another tax benefit step-up that we should be thinking of for fiscal '19 in your earnings floor -- base?

No, I would think about the range we provided for '19. There are a lot of puts and takes as we go forward, so we're not expecting any kind of big step-up in '19.

Right. Okay. And then in 2023, when the French tax goes from 39.8% to 25%, or I just back into the number that you used? Is that a $0.09 step-up in earnings on a base case because it reverts back down from 39.08% to 25%?

We haven't even attempted to try to quantify that yet out in 2023.

I want to know your 2023 number, Kirk.

Yes, let us know.

Okay. And then in 2014, you guys did a special kind of a bigger step-up in dividend and in going back to, I think what Chris was asking, should we be thinking that you're -- when you're looking at the dividend, you might rebase the dividend at a higher level? Other guys in the industry have been doing that. I was curious if you guys are -- is that something that you might bring to the board? If I remember correctly 2014, you had that higher-than-normal step-up in dividend to create a new floor.

Well, we would -- we go through the same process each year, Stephen, where we take the board through kind of where we're sitting today, what our payout ratios are and what they're projected to be. So that process is -- will ramp up here over the next couple of months leading up to the spring board meeting. So positive developments are a good thing, and will be reflected in that discussion. I think the -- 2014 was unique in some aspects, I wouldn't just take what we did in 2014 and move it forward, it's -- each year is a new process, but it's great to have positive developments like this. This is a development that is positive from an earnings standpoint immediately, and clearly going to be positive from a cash standpoint, if we look out a few years. So that will be part of that discussion and the board will weigh in. So I don't want to jump ahead but we have some positive developments that we'll be discussing with the board.

Okay. And then one final question. The -- I was a little unclear. Most of the utilities that are talking about how this -- the tax plan impacts them. They might need a little bit more near-term cash because -- to fill in the refunds that most of the utilities are giving back. But it's actually not a negative for you guys in any way for earnings. It actually -- as you refund the cash, you actually increase your rate base dramatically and because you have all that cash and free cash flow to invest in it. It should be actually raising your base case organic growth at the utility faster than what you've originally planned. Is that not the way I should be thinking about it?

Well, it will act to increase rate base over time, but the Pennsylvania PUC hasn't come back and said that they want people to refund. It may just be something that comes in over time. So as you do rate cases going forward, you request a lower revenue requirement than you otherwise would related to taxes, but on a higher rate base than you might otherwise have had. So -- but the Pennsylvania PUC has not -- they're looking at it and we haven't really gotten clarity yet on how they plan to treat it.

And then -- but your conclusion, Stephen, about the company overall is correct. It's -- this is not in any way a materially negative development from a cash standpoint. It's -- the first couple of years are puts and takes, but it's not material either positive or negative and then it becomes materially positive, and that reflects kind of the diversity of the company, and we're able to -- there's a lot of significant positive developments. For example, as I mentioned in my remarks, the fact that we're executing a range of capital projects in the Midstream business, several of those projects will benefit -- that are in the construction phase, will benefit from the new tax legislation and we're looking at enhanced project returns from projects that are recently completed or underway. So that's a great thing as well.

Oh, so you're saying that you're not reflecting the 100% depreciation effect of new assets? Is that what you were -- is that not in the numbers today from a cash standpoint?

No, it is, but I'm talking about assets that aren't even deployed yet. So if I'm looking at a new capital project that has an IRR of x -- unlevered IRR of x, it's now x plus, it could be x plus 1% or 1.5% based on that -- just as a generic example.

And we have no further questions in the queue at this time. Mr. Walsh, I'll turn the call back over to you for closing remarks.

Okay. Thank you very much, appreciate all your time this morning. And we look forward to keeping you updated. And we'll talk to you soon on our next call. Thank you.

This does conclude today's conference call. Thank you for your participation. And you may now disconnect.