Will Ruthrauff - Director of Investor Relations John Walsh - President and Chief Executive Officer, UGI Corporation Kirk Oliver - Chief Financial Officer, UGI Corporation Jerry Sheridan - President and Chief Executive Officer, AmeriGas Partners.

Mirek Zak - Citigroup Ben Brownlow - Raymond James Chris Sighinolfi - Jefferies.

Good morning. My name is Casey, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the UGI Corporation and AmeriGas Partners Fiscal Second Quarter Earnings 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. Mr. Will Ruthrauff, Director of Investor Relations, you may begin your conference..

Thanks, Casey. 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 release's reporting second quarter results and updated fiscal 2018 guidance for UGI and AmeriGas. We had a very strong Q2 achieving record EPS on both the GAAP and adjusted earnings basis.

Each of our four businesses contributed higher adjusted net income than in Q2 fiscal 2017. Weather was slightly warmer than normal in each of our domestic businesses and slightly colder than normal for UGI International.

Our strong performance in the quarter reflects the positive impact of more normal winter weather in our domestic businesses, our lower effective tax rate following passage of the Tax Reform Act and the continuing earnings contributions from our new investments and acquisitions.

I'll comment on noteworthy activities and market developments in Q2 and turn it over to Kirk, who'll provide you with the details overview of UGI's financial performance. Jerry will review Q2 for AmeriGas and I'll then wrap up with an update on our strategic initiatives. We're pleased to once again report record earnings for UGI.

Our Q2 GAAP EPS was a $1.57 and our adjusted EPS was a $1.69. That adjusted Q2 EPS was 29% above our Q2 fiscal 2017 adjusted EPS of a $1.31, which at the time was the highest adjusted Q2 earnings reported in UGI's history. Both quarters have an adjusted for mark-to-market valuation of little hedges and other items which Kirk will cover later.

While our Q2 results clearly benefited from the impact of Tax Reform, our underlying business performance was extremely strong. EPS excluding the positive tax impact was up almost 15% over Q2 fiscal 2017. Now that we reported Q2 were in a good position to update you full year guidance for fiscal 2018.

On a year-to-date, our adjusted EPS is running over 20% above prior year. Based on this very strong performance, we're increasing our guidance to a range of $2.70 and $2.80. The midpoint of the updated guidance is almost 8% above the midpoint of our original fiscal 2018 guidance of $2.45 to $2.65 and 20% above our 2017 full year adjusted EPS of $2.29.

In addition to the strong earnings performance in the second quarter, it's important to note the progress we've made on a number of strategic projects and activities.

Our teams as always maintain their focus on meeting our critical commitments to customers in the communities we serve, while also ensuring that our new capital projects and acquisitions meet or exceed their performance targets. Some highlights for the quarter.

With our FERC certificate in hand, the PennEast partnership team is now focused on local activities in both Pennsylvania and New Jersey. The partnership is working cooperatively with property owners and has obtained survey commission for 97% of the route in Pennsylvania and 50% of the route in New Jersey.

This project 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 working closely with government agencies in both states, as we move through the detailed processes related to property surveys, land acquisitions and local permitting. Our LNG facilities were extremely busy in Q2, particularly during the period of severe cold in early January.

We made great use of our new Manning liquefaction facility which came on stream last year. The LNG produced at Manning is being used to service our growing portfolio of peaking contracts and also positions us well to provide incremental LNG services to critical customers in New England. Demand for LNG is very high.

As the combination of increased peak day demand for most gas LDCs and ramping power generation demand strains the available pipeline capacity for many areas of the mid-Atlantic and all of New England.

LNG has become an essential element of the supply portfolio in those regions and our Manning investment was well timed as the sector looks for incremental supply capacity. We continue to grow our customer base at UGI Utilities, as we add new customers along our mains and extent our mains to reach under-served towns across the commonwealth.

We've added over 8,600 new residential heating and commercial customers' year-to-date and demand for gas service continues to be very strong. UGI Utility now serves almost 650,000 natural gas customers in Pennsylvania, an increase of approximately 50,000 customers over the past five years.

We continue to make great progress with our mission to replace and reinforce critical infrastructure across our system. Our infrastructure replacement program for cast iron and bare steel remains on pace. AmeriGas had a very solid quarter with adjusted EBITDA up 14% over Q2 fiscal 2017.

The team in AmeriGas did an outstanding job handling the variable weather conditions across the U.S. during the quarter, as we moved LPG assets and drivers to the areas where they were needed. Jerry will comment in much more detail on AmeriGas' Q2 performance in a few minutes.

UGI International had a strong quarter, reflecting solid underlying performance across the business and the positive contributions from DVEP and UniverGas two acquisitions made in late fiscal 2017 and early fiscal 2018. Adjusted income before tax was up approximately 5% versus Q2 fiscal 2017.

On a year-to-date basis, adjusted income before taxes roughly equivalent to the record earnings achieved by UGI International in the first half of fiscal 2017. These two outstanding years back to back clearly demonstrate the resiliency and earnings power of UGI International.

I'll return later in the call to comment on our strategic initiatives, but I'd like to turn over to Kirk at this point for the Financial Review.

Kirk?.

Thanks John. Good morning, everybody on the phone. This table lays out our GAAP and adjusted earnings per share for this quarter compared to Q2 of last year. As you can see, adjusted results exclude the impact of mark-to-market changes in commodity hedging instruments. A loss of $0.08 this quarter versus $0.02 in the prior year.

You can also see the integration expenses associated with the Finagaz acquisition, the unrealized losses on foreign currency hedges and the one-time tax impacts of the French Finance Bill and the Tax Cuts and Jobs Act.

Our adjusted earnings of a $1.69 per share for the quarter is up $0.38 from last year, largely due to weather that was relatively normal, but significantly colder than the prior year and the positive contributions from our recent capital projects and acquisitions.

This quarter's results include a $0.19 positive benefit, due to a lower federal income tax rate resulting from the Tax Cuts and Jobs Act and that of the negative impact of higher tax rates in France. Approximately half of this benefit for a quarter and the year-to-date is attributable to the utility.

As you can see, all of our businesses posted results that were higher than the prior year. In the case of Midstream and Marketing and UTI Utilities, adjusted EPS was up 54% and 38% respectively, highlighting the positive impact of colder weather, the benefits of Tax Reform and the contributions from investments we have made over the past few years.

As mentioned, AmeriGas experience weather that was approximately normal but 14% colder than the prior year. Retail volume was up 10% driving total margin that was about $49 million above the prior year level. Adjusted EBITDA was $309 million for the quarter, representing an increase of $38 million or 14% versus the second quarter of last year.

Jerry will spend some more time on AmeriGas in just a bit. UGI International contributed $129 million in adjusted income before taxes, about a $6 million increase over last year.

Retail volumes were up 25 million gallons or 10%, driven by weather that was 6% colder than last year, as well as incremental volume from the UniverGas acquisition in Italy that we completed last October.

Total margin was up $61 million, reflecting higher incremental margin from UniverGas, as well as DVEP and stronger foreign currency exchange rates, partially offset by slightly lower LPG unit margins.

Operating and administrative expenses increased by about $40 million, reflecting currency translation effects as well as $10 million of incremental expenses associated with the UniverGas and DVEP acquisitions.

As a reminder, foreign currency fluctuations impact individual financial statement line items are largely offset by our foreign exchange hedging. The gains and losses from hedging are recorded in other income and expense. Midstream and Marketing income before taxes is up $24 million to $107.6 million for the quarter.

Total margin was up $33 million, reflecting higher capacity management peaking and natural gas gathering margin, as well as higher electric generation margin.

These increases were driven by extremely cold weather that occurred early in the quarter, an increase in the number of peaking contracts and contributions from the Sunbury pipeline, as well as the Texas creek gathering assets we acquired in October. Turning to Slide 13.

Utilities income before taxes of $124 million, about $18 higher than last year's quarter. As I mentioned earlier, utilities experienced weather that was about 11% colder than last year which along with continued growth in our customer base drove an increase in core market throughput of about 15%.

Total margin was up $30 million, due to the higher throughput, higher PNG base rates that went into effect in October and hire large firm deliveries.

Partially offsetting this weather driven increase in margin for operating and administrative expenses that were up $8 million, primarily driven by higher accounts receivable reserves and compensation expenses. Both driven by our increased revenues and volumes in the quarter.

This Slide compares the first half of EPS results with the first half results from 2013, the last time the company experienced relatively normal weather in all of its service territory. You can see that adjusted EPS excluding the benefits from Tax Reform has increased by $0.82 or more than 50%.

With the benefits of Tax Reform included, adjusted EPS growth over the past five years was proximately 69%. This growth is due to the disciplined investment of UGI's capital and a very attractive projects and the company's intense focus on operational efficiency.

That completes my prepared remarks and I'll now turn the call over to Jerry for his reports on AmeriGas..

Thanks, Kirk. AmeriGas finished the second quarter with adjusted EBITDA of $310 million, 14% ahead of the second quarter last year. Weather in Q2 was essentially at the 15 year normal and 14% percent colder than last year. Certainly welcome development to see normalized weather during the critical when our earnings cycle.

Although the weather was basically normal for the quarter, there were some significant swings. As I noted on the Q1 call, January benefited significantly from the extreme cold temperatures in late December, January was 11% colder than the previous January and volume was up 19% due to lag between weather, customer orders and the delivery cycle.

February on the other hand turned very warm, almost 10% warmer than normal. Mid to late March return to colder than normal weather and this trend continued into April. Overall volume for the quarter was up 10% over last year with 14% percent cold weather, so good relationship.

Propane cost has been relatively stable this quarter though up from last year, Mt. Belvieu cost for the quarter was $0.84 per gallon, up 19% from Q2 last year and operating expenses in the quarter were up 5% mostly related to delivery costs associated with a 10% greater volume in the quarter.

Finally, we are updating our guidance principally due to the warm start in Q1 and warm weather again in February to $625 million to $645 million of adjusted EBITDA for the year. At the midpoint of this range, EBITDA would be up 13% from fiscal 2017 and 12% percent colder weather. Now turning to our growth.

The AmeriGas Cylinder Exchange program saw a 15% increase in volume for the quarter as compared to Q2 last year including a 6% increase in same store sales. Our National Accounts program volume was up 18%, due to both weather and new business, so a very strong quarter for both of these growth platforms.

We also closed one acquisition in April and that's expected to add 3 million gallons annually. Before moving on, I wanted to mention upcoming accounting matter. As a result of the Heritage Propane acquisition in 2012, we acquired trade names that we intended to use across our newly expanded footprint.

Now that we are more than 6 years removed from the Heritage acquisition, we previously disclosed our intent to complete a review of the operational value of these trade names during fiscal 2018.

This work was just recently completed and we concluded that these trade names would previously had an indefinite life and were not subject to amortization will now have a definite life of three to five years and we will either eliminate or adopt co-branding strategies across the acquired trade names.

During April, we recorded a non-cash charge of approximately $70 million to adjust for the fair value of these trade names given the shorter useful life and this chart will be excluded from adjusted EBITDA.

These revalue trade names will be amortized over the next three to five years as I mentioned, beginning in Q3 and while there is no cash flow impact as this is a non-cash charge, I wanted to make you aware of it as an upcoming Q3 event and it also be disclosed in our upcoming 10-Q.

Finally, our Board of Directors recently approved a distribution of $0.95 for a quarter, unchanged from the prior quarter. This is the time of year when we discuss the annual distribution actions with our board and we recommended and they approved holding the distribution flat this year.

We really believe this action along with our significant improved results will go a long way as we seek to build distribution coverage following two warm years in 2016 and 2017. We expect to finish 2018 with improved leverage in the range of 4.3 times and distribution coverage over one time. So thank you. That concludes my comments.

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

Thanks Jerry. Before I review our strategic investment activities, I'd like to take a moment to comment on this slide. These side by side photos show, on the left our Auburn pipeline during the construction phase and on the right that same section of the Auburn line after the pipeline was placed into service.

There is a significant amount of public discussion today around the need for new infrastructure and the challenges related to placing that new infrastructure into service. The commitment to responsible development is something UGI and our colleagues in the sector take very seriously.

And the restoration of the Auburn line right away is just one example of that commitment to responsible power. As I mentioned in my earlier remarks, we were pleased to report record adjusted EPS for Q2 and increase our guidance for full year adjusted EPS.

In addition to that earnings performance, there were several other noteworthy achievements in the quarter that will position us well for future earnings growth. UGI and many other east coast LDCs experienced record natural gas demand during the first two weeks of January.

Our peak day send outs were 7% to 14% above the record send outs achieved during the polar vortex of 2014. This peak demand exceeded available pipeline capacity in the mid-Atlantic and New England. In light of this strong natural gas demand, we continued to see a significant need for new delivery capacity.

We're pushing forward on multiple fronts to address this market need which creates new investment opportunities for the company. I commented on the status of PennEast earlier on the call. This is an important project for UGI and our partners, but is only one of a portfolio of new UGI natural gas infrastructure investments.

We continue to expand our LNG network with a series of investments focused on meeting the rapidly escalating demand for peaking services.

We've concluded the construction of the steels in Pennsylvania LNG storage and vaporization unit and our board has approved the construction of another new LNG storage and vaporization facility near Bethlehem, Pennsylvania. This project representing an approximately $60 million investment will add $2 million gallons of LNG storage to our network.

It will enhance our ability to meet the rapidly growing demand for LNG and strengthen our ability to use our LNG system assets dynamically based on market conditions.

There's very strong demand for LNG peaking services in the mid-Atlantic and New England as LDCs and other large consumers seek supply solutions to ensure long term access to natural gas delivery capacity. Our investment outlook for utilities remains very strong.

We're deploying record levels of capital to address infrastructure needs while growing our customer base. Our goal is to ensure continue access to low cost natural gas for our core customers and provide access in previously unserved or underserved areas of the commonwealth.

As I noted on our last call, we plan to deploy upwards of $1.2 billion in capital at the utilities over the next four years. AmeriGas team is doing a great job of utilizing their scale and operational capabilities as the nation's largest propane distributor to drive growth in their National Accounts and A Cylinder Exchange programs.

As Jerry mentioned, volumes in the second quarter for our National Accounts customers were up 18%, while our A Cylinder Exchange volumes grew 15%.

We continue to be very pleased with the performance of our two most recent acquisitions in Europe, DVEP, the power and natural gas marketing unit in the Netherlands, and UniverGas, our initial investment in the Italian LPG market.

I should also comment on the progress made on our integration activities in France related to our 2015 acquisition of Finagaz. Our integration program is now on final stages. Our team in France has done an outstanding job of achieving all the critical integration and performance milestones for Finagaz.

We're approaching the three year anniversary of that strategic investment and we expect that our integration work will conclude on schedule this fiscal year.

As Kirk highlighted in his remarks, the combination of strong business unit operating performance and the beneficial impact of Tax Reform Legislation drove excellent financial performance for the quarter and enhanced our full-year outlook.

As I mentioned at the beginning of the call, we are increasing our fiscal year adjusted EPS guidance range from $2.45 and $2.65 to a range of $2.70 to $2.80.

This guidance reflects our strong operating performance of the first two quarters, as well as the benefits of Tax Reform and it excludes the impact of the non-cash charge related to trade names at AmeriGas that Jerry discussed in his remarks.

We've great confidence ability of our teams to execute operationally and identify attractive growth investments that align with our business unit strategies. We're also excited about the long term positive impact of the recent Tax Reform Legislation.

These changes benefit companies who consistently invest in growth opportunities and also reward companies that have been prudent in managing their balance sheet. UGI fits both of these descriptions so these benefits are very meaningful for us.

Our new CFO, Ted Jastrzebski will be joining the company in about three weeks and we look forward to introducing Ted to our investors of the course of the summer and fall. Finally, I'd like to close up my remarks with a thank you to Kirk Oliver for his leadership and contributions to our success as our CFO over the past five years.

We wish Kirk all the best in his new endeavors and we're grateful for the opportunity we've had to work with him. With that, I'll turn the call back over to Casey who will open it up for your questions.

Casey?.

Great. Thank you. [Operator Instructions] And your first question comes from Mirek Zak with Citigroup. Please go ahead, your line is open..

Hi, good morning, everyone..

Good morning..

So, I understand the relationship between our weather and volumes is necessarily linear, but it seems volumes didn't quite respond to more normal winter weather than some might have expected.

So I was just wondering if you can speak to if you saw any other dynamics playing out during the quarter maybe increased price in competition with mom-and-pops are large players or any sort of increased level of customer attrition during the quarter?.

No. no. So it's been a pretty good year for us in terms of customer retention, number one. We did have moments of some shortage in parts of the country during parts of January where we did do some short filling where we just don't have enough propane to fill the tanks. But that was really minor.

I think the headline for the quarter really it was February being 10% warmer than normal. It really cause your water pool to slow down quickly and then of course you responded around mid-March, got very strong again. So, just as you saw the cold in late December helped January, the warm in February effected the early part of March.

But the cold March certainly gave us a great lead in April, so April's been an outstanding month for us as well..

And I just comment more broadly because we look at both AmeriGas and UGI International. The patterns with regard to weather and the response of volumes to weather patterns are very similar in the U.S. and Europe.

So we compare that weather and volume pattern in AmeriGas to say that same pattern France where we have a large business very, very similar, you get that lack back depending on sort of timing of weather and volumes follow but with the lag..

Okay.

So considering the weather, you wouldn't necessarily consider this a sort of a more normalized situation going forward?.

It's normal across a period of time, but you also remember Q1 excluding the last week of December was 7% warmer than normal.

So we got off to a relatively warm start, had sudden and extreme cold, but really when we look at a normal year, we're looking at not having these peaks and troughs that have been so significant this year, so that that does affect things..

Is there a way you can quantify sort of what you think that the delta was due to these peak and trough?.

As far as volume?.

Yes..

So, I mean when you look at it across the entire year. And if you for instance this quarter, we're looking at whether that's 14% colder and volume up 10% and not all of our business weather sensitive. So, you don't expect it to be one for one, we've got a lot of commercial business, restaurants and so forth.

Forklifts that really don't care about the weather. So having that relationship year-over-years is really something that's quite normal that you have that kind of 70% of the weather effect..

Okay. And just one more quick one.

On the Cylinder Exchange business, what is the typical capital investment you make to operate that business in a typical year sort of excluding what is associated with growing the business, and is that same in your maintenance expense?.

This is Hugh. In maintenance and growth, we don't disclose capital separately by type of business, but it is half of ACEs business is maintenance capital half of the growth but we don't disclose the details..

Okay. Alright, great, thank you. That's all for me..

Thank you..

[Operator Instructions] Your next question comes from Ben Brownlow with Raymond James. Please go ahead, your line is open..

Hi, good morning. Just kind of on the last question I guess from a slightly different angle.

On the guide down for the year was that entirely volume driven or can you provide any color around kind of the unit margins in the OpEx versus what your internal expectations where?.

Our volume expenses have been tracking very well, in fact we've had some callback opportunities in the back half of the year. But really February is just such an important month to our year and for that now to come through. We probably could have made up but we lost in Q1 but February was a bit of a problem.

But you know midpoint of our guidance down 5% and you have a critical month that became in 10% warmer than normal..

Yeah, when you look at the critical metrics, unit margins or EBITDA per delivered gallon, the business is performing very well. So the underlying metrics that would capture sort of commercial effectiveness and operational effectiveness in the business are trending in the right direction. So it is volume related..

Our EBITDA for gallon in the highest, it's been since we acquired Heritage first quarter..

Great, thanks. And as we think about the distribution coverage ratio and obviously very seasonally high, but on a trailing four quarter basis just below one times.

In winter terms obviously extremely volatile not ideal, but definitely colder year-over-year closer to the historical norm, can you walk us through the high level steps to improving the coverage ratio, is it just getting an ideal weather pattern or you know how should we think about that on a go forward basis, obviously maintaining the distribution at its current level as one step?.

Yeah, there's no suggestion that we're not going to keep it at the current level. But we you know I think we watch the rating agencies and Moody's had us on a negative watch and we're very sensitive to all the constituencies. So we're going to spend a little time building back to where we'd like to be, which is one, one to one, two.

This year will be a great step forward. Next year we do see more normalized weather on rateable basis instead of extremes. We should be back completely and might be in a position to increase the distribution next year..

And we're confident, as we look over the last two quarters of the year, obviously there are lower activity level orders.

But if you look at our guidance for the year, the updated guidance from AmeriGas, and you look at, we're predicting forecasting for the balance of the year, it's quite a strong two quarters of performance that's driven by growth in some of the core sectors we talked about like ACE and National Accounts, but also driven by operational efficiencies and improved performance there.

So as we drive operational efficiencies and grow those specific segments, obviously the underlying performance of the business improves which puts us in a great position moving into fiscal year 2019. When you look at overall business performance, gives us a lot of confidence in terms of distribution coverage as well..

Great, thank you.

And I guess one just last follow-up, you made a comment around kind of late March to May, any sense to how propane sales for in April?.

Yeah, April was a record, close to record month for volume of about 20% higher than last year, so very strong. Q3 is really shaping up nicely..

Great, thank you and best of luck..

Thank you..

Your final question today comes from Chris Sighinolfi with Jefferies. Please go ahead, your line is open..

Thanks. Good morning..

Good morning, Chris..

Jerry, just wanted to - I have a couple questions. First I guess for you.

With regard to the trademark commentary you're offering before, I just want to make sure I am understanding that correctly, just an accounting - change in your accounting practices, but do you still intend to use those trade names in all the regions?.

You know. we're going to - clearly now, we have one hundred brands across the country and that is kind of an expensive way to do business about a hundred websites, so you know all the things you've got, all the marketing collateral.

So we've reviewed it with our operating folks in the field, concluded there's around 15 brands that have really high local value. So, we'll begin to co-brand them and slowly over time the rest will be programmed and slowly removed.

But the whole then is completely operational total non-cash charges just something was hung up on the balance sheet six years ago that we now are going to take away because the value is diminished..

Okay, but there is that practice of that I guess now streamlining the number of brand names on it which AmeriGas operates and that it will be true when you make acquisitions from here as well, likely just do a market study on how that pay on region?.

Yeah, I wouldn't say that we'll never acquire a company and leave the brand alone ever again, but our bias will be toward keeping everything AmeriGas as best we can and continue to improve the digital experience that the customer has..

Yeah, I think that last part is really critical as we communicate a lot more in new ways and enhance our communication with customers particular using digital tools, it's really helpful if we can align on a branding approach. So that this is reflecting that sort of acceleration of that activity..

So, longer term I imagine this is a lot more than efficient, they'll be some efficiency gains putting them into a streamline you know trademark branded a product, but is there an uptick in costs we should expect Jerry, as you sort of do away with that in co-brand like you said you have costs you know that are meaningful in any way or something that can...?.

Nothing material, I mean we replace signs all the time anyway, so this is not going to be a massive undertaking..

Okay, perfect. And then I guess if I could switch gears John, I was interested in your comments it's something we've thought a lot about as PennEast and other regional pipelines have encountered, seems to be an intensive intensification of the opposition to them.

Is this whole notion if you go back couple years ago, you would talk in line talk about the infrastructure gap that exists you know between the production fields of Pennsylvania and the demand sources to the east and north and then your Marketing and Midstream business is position to take advantage of that.

You know the dislocations that happened straddling that infrastructure gap, is that - it was also actively working to bridge that gap with new infrastructure. And so the peaking demand that you talked about and the appetite for LNG peaking, I was interested in the new Bethlehem plant.

But I guess broader question is, how does the regulator think about that, look at the UGI utility, throughput and you had mentioned your release that you guys were pretty similar to 2013 and went back and looked they were within 5% but your load was up about 30% thirty percent over that time period.

So how does the - I guess how does the state regulators think about the fact that maybe it's not a Pennsylvania question, maybe it's question beyond that, but think about this infrastructure gap in fact maybe getting worse before it gets better?.

Yeah, I think that's a major concern. Certainly within the state, we are fortunate for most of Pennsylvania you have pretty ready access to the Marcellus resources. So you know our utility and others are sourcing the vast majority you know upwards of 90%, 90%-95% of your natural gas is coming from the Marcellus.

So Pennsylvania is pretty well placed and it's all about being efficient and that's where we're peaking comes in. Peaking is a very efficient solution to provide that access.

I think if you're east or northeast of Pennsylvania, there are significant challenges that we as a supplier can see because we're not unique in the type of demand ramp that you described Chris.

Most utilities are seeing core customer demand ramping up as they add new customers and many utilities including us are serving new gas fired part generation facilities that have been built over the last five to seven years. So that demand continues to rise.

And what's happening on the infrastructure side is, as you noted, projects are slowing down, some are being canceled, many are slowing down, which then creates a bigger gap, which is a challenge for all utilities and for us creates opportunities for investment like the LNG investment.

What it also does is create incremental demand on some existing systems we have as producers and others look for pipeline capacity to move product to market. And if they have fewer options then they'll tend to come back and utilize some existing pass to market, which creates opportunities for us to expand our systems such as Auburn.

And it certainly provides us with opportunities to expand our LNG network because that demand is high for peaking services and also just provision of LNG across the region mid-Atlantic and New England..

Okay. And I guess you know we saw the original temple build and then we saw Manning, and it's mirrored by stilt and re-gas, now we're adding liquefaction in Bethlehem, should we think about there being another re-gas opportunity at some point somewhere on the system that's tight..

No, Bethlehem is storage and vaporization, so Bethlehem is kind of a twin to steel, so that's a site where we can store vaporize and inject this directly serve demand, which for us is a critical commitment we have in this case the UGI utilities to serve their customers would provide the peaking service that they'll use to serve their customers.

But also provides to the Midstream marketing team another significant asset that can be utilized during periods of sort of peak activity and volatility to create value across the system, because we can vaporize and inject on a local basis and free up pipeline capacity that can be utilized on those cold days to deliver gas to constrained areas.

And certainly we saw a significant amount of that this quarter in the very beginning of the quarter, there was significant volatility. So the ability to move gas east and northeast on those days was quite valuable..

Okay. My mistake. Thanks for the color on that, John..

Sure..

I guess final question for me is just with regard to the dividend, historically you guys have had a very static payout ratio guidance range in terms of how the dividend policy works.

And I guess I'm just curious given the new guidance range midpoint of 275 and what you'll end up paying this year with the raise you just announced, sort of puts this at the low end of the 35% to 45% ratio.

So I'm just curious as the board considers you've done punctuated step ups in the past just what are some of the other factors we should be thinking about that the board might be considering I guess as it comes to future dividend explorations and the potential punctuates step up?.

Sure. Yeah, as you - Chris, we have that kind of dual element approach in terms of given a policy. We state what our target is, but as we fall through that range, we then look at making sure roughly in that range of 35% to 45%. With the new guidance and the increased dividend, we'd be somewhere around 38%. So we're coming down which is a good thing.

So we certainly keep those two factors in mind moving forward. As you look historically, we are average over say 5 or 10 or 15 year period is higher, it's depending on which period it is, its 6% or 7% is our long term average for dividend increases. Because of that those periodic increases that we make to keep us within that rough range that we use.

I think one consideration as we think about dividend policy was the Tax Reform Act was clearly beneficial and evident when we look at our earnings, the earnings impact. The cash impact will be positive for us, but the positive cash impact of the Tax Reform Act is deferred.

So it's really two years until we see material positive cash impact based on the Tax Reform Act, just based on some of the intricacies of that. But when it turns positive, it's materially positive, it's roughly somewhere in the neighborhood of 25 million to 30 million of incremental cash that we'll see but as I said it's deferred for couple of years.

It's neutral in the interim, neutral from a cash basis..

Okay. Thanks a lot for the time this morning guys and best of luck on your next endeavors, it's been a pleasure working with you..

Thanks, Chris..

And I will now turn the call back over to Mr. John Walsh for closing remarks..

Okay. Thank you, Casey and thank you all for your time and attention this morning and we look forward to keeping you updated on progress and speaking with you on our next call. Thank you..

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