CMS能源 (CMS) 2004 Q2 法說會逐字稿

Good morning, everyone, and welcome to the CMS Energy 2004 second quarter results and outlook call.

This call is being recorded.

Just as a reminder, there will be a rebroadcast of this conference call today beginning at 1:00 p.m.

Eastern Time, running through August 12.

This presentation is also being webcast.

An audio replay will be available approximately 2 hours after the webcast.

And will be archived for a period of 30 days on CMS Energy's website in the Invest In CMS Section.

At this time I would like to turn the call over to Laura Mountcastle, Vice President of Investor Relations.

Please go ahead.

Thank you.

Good morning, and thank you for joining us.

With me today are Ken Whipple, Chairman and Chief Executive Officer, Dave Joos, President and Chief Operating Officer, and Tom Webb, Executive Vice President and Chief Financial Officer.

First I'll read our disclosure statement.

This presentation contains forward-looking statements.

Actual results may differ materially from those anticipated in such statements as a result of various factors discussed in our SEC filings.

The presentation also includes non-GAAP measures when describing CMS Energy's results of operations and financial performance.

A reconciliation of these measures to the most directly comparable GAAP measure is included in our earnings release posted on our website at cmsenergy.com/invest.

A copy this presentation also is posted on the website.

Now I will turn the call over to Ken.

Thanks Laura and good morning, ladies and gentlemen.

We're pleased that you can join us today for our second quarter call.

This morning, I'm going to review the progress we've made on the 2004 priorities laid out earlier this year.

Then I'll turn the call over to Dave to give you an update on our recent operating performance.

And he'll also bring you up to date on regulatory issues, and he'll cover the status of this year's asset sales program.

Next, Tom will discuss our second quarter financial results, our 2004 earnings guidance, and our cash flow forecasts.

And then I'll wrap up the call with a look at our 2004 financial report card and then we'll open it up for your questions.

As I mentioned in our first quarter call, 1 of the top priorities of our Utility-Plus strategy is to maintain a strong focus on cash flow and earnings.

Our goal is to continue growing earnings per share in the mid single digit range.

As you know, our second quarter reported and ongoing results of 10 cents a share were up 13 cents from a year ago.

Those results are consistent with our full year ongoing guidance of 85 cents a share.

And Tom's going to give you a few more details on that in a minute.

On reported results, we've improved the outlook for 2004 from a loss of 35 cents a share to about breakeven.

This improvement reflects changes in the expected proceeds and timing of asset sales.

Another priority is the fair and timely resolution of regulatory issues.

Consumers has been working with the public service in Michigan to resolve a number of these issues, and we are making some progress.

In June, for example, the Commission ruled favorably on the recovery of implementation costs going back to 1997, and we've had several other recent positive developments which Dave will cover in a minute.

This week, we completed the refinancing of CMS Energy and Consumers Energy revolving credit facilities.

Each one for a term of 3 years.

In a strong show of support from our banking partners, the parent facility was upsized to $300 million, and the Consumer's facility was upsized to $500 million.

These facilities provide us with better financial flexibility and liquidity and at lower interest rates.

Finally, our employees continue to demonstrate their superior operational skills.

As you'll see, the availability of our power plants exceeded expectations during the first 6 months of the year.

And our employees have done a great job in meeting or beating the performance standards established by the Public Service Commission.

And now I'll turn the call over to Dave to update you on operations.

Dave?

Thanks, Ken, and good morning to those on the call.

At the electric utility, our base load generating fleet has achieved 88% availability for the first 6 months of 2004.

About 3% better than planned and 3% better than last year.

This is a real tribute to our employees who have kept our coal fleet availability at 85% for the year.

Our Palisades plant, nuclear plant, experienced a couple power derates for maintenance in July but it still achieved 99% availability year to date.

Very good performance.

Palisades has now run 473 consecutive days, an all time record for a consumers generating plant, and we expect it will run continuously until its scheduled mid-September refueling outage.

The generating plants on the enterprises sighted have also had a very good first half of operations, achieving 93% availability.

Our crew has performed extremely well in restoring power to more than 250,000 customers during a major wind and rainstorm that downed over 4,000 wires in our system in May.

Crews were brought in from neighboring states as a result of the widespread outages, and our restoration costs total about $5 million.

Despite the May outage, we are on track, as Ken said, to achieve all of the electric utility performance standards put into effect by the Michigan Public Service Commission last year.

Finally, I'm happy to reported that the gas supply shortage we've talked about earlier in Argentina has improved over the past couple of months.

Along with local production, enough gas is flowing into Argentina from Bolivia to supply local demands and to allow for Argentine exports at the same level as last year.

Consequently, Atacama common gas supply is back to normal.

As you know, we did experience a partial curtailment in the second quarter that impacted our bottom line by about $3 million.

Turning to our regulatory agenda, let me bring you up date on recent developments.

On June 29, the Commission approved full recovery of electric customer choice implementation costs for the period, 1997 through 2001.

Selection by way of a kilowatt hour charge will take place over 3 year periods beginning July 1, 2004, for industrial customers, January 1, 2005, for small commercial customers, and January 1, 2006, for residential customers.

Including carrying costs, the total amount to be recovered through the end of the period is approximately 107 million.

There will not be any income statement impact from this order, but this will obviously be beneficial to utility cash flow.

The gas rate case and gas depreciation case are both awaiting final orders.

We're anticipating an order in the gas rate case early in the fourth quarter.

I don't have a bullet on the slide, by the way, regarding our gas cost recovery proceedings, but we're pleased that we have an approved settlement from the Commission for the 2004-2005 season.

And we've already secured about 95% of our gas supply.

Turning to securitization, now that we're authorized to recover electric customer choice implement costs through a separate surcharge, our securitization case is limited to Clean Air Act related costs.

This case is ready for a decision process wise.

We continue to believe that securitization is the preferred method of recovery for these costs, from both the Company's perspective and from the perspective of our customers.

However, if we don't receive a favorable ruling, we expect to fully recover Clean Air Act costs either through the rate case or in a separate filing as permitted under PA 141, Michigan's Electric Restructuring Law.

We are seeing some progress on the strand cost front.

For 2002, you may recall, that we filed for recovery of $38 million plus $9 million in carrying costs.

On June 29, the Administrative Law Judge in the case issued his proposal for a decision recommending $10.5 million, plus $1.5 million of interest, consistent with the position of the Michigan Public Service Commission staff.

The differences between our filing and the staff's position are really 2 The exclusion by the staff of certain short term summer capacity purchases from the calculation, and the treatment of discounts that the Company has provided to certain special contract customers.

Regarding 2003 stranded costs, consumers filed to recover $61 million, plus interest of 9 million.

On July 23, the Commission's staff filed its testimony, recommending between $45 and $54 million of stranded cost recovery plus interest.

Like the 2002 case, the staff position excludes recovery of special contract discounts.

The range they proposed depends on a Commission decision regarding how to treat the cost of short term summer capacity purchases.

This case, the 2003 case, that is, has been put on an accelerated schedule by the Michigan Public Service Commission.

Replied briefs are due September 17, and the Commission will then read the record and render a decision without waiting for a recommendation from the Administrative Law Judge.

Final orders are expected in both the 2002 and 2003 cases early in the fourth quarter.

As a reminder, because Consumers has not accrued for recovery of prior years' stranded costs, we will record a positive income statement adjustment in the amount of the final award in each case.

The parties to the Michigan - - I'm sorry, to the Midland Co-Generation Venture, a resource conservation plan, have been engaged in active settlement discussions for the past several weeks, and we're optimistic that a settlement can be reached to allow for implementation by the 1st of October.

Which is consistent with our forecast.

So stay tuned on that issue.

On July 26, we reached a settlement with the staff and abate to recover $25 million of incremental security costs at our nuclear plants as allowed by the Electric Restructuring Law.

Assuming approval of the settlement which we anticipate in about 30 days, we'll recover these costs through a 5 year surcharge.

There will be no income statement impact as we'd already accrued for that recovery.

And finally, as we said before, we're hard at work preparing our electric rate case, which we still plan to file late this year.

No details yet available on that.

In early July, 6 bills were introduced by 6 different members of the Michigan Senate that would revamp Michigan's Electric Choice Law.

The bills provide for catchup of stranded cost for the years 2002 through 2004, and define specific revenues lost method to calculate those stranded costs.

These stranded costs would be collected over a transition period of 10 years over which rate skewing is to be eliminated.

The transition period would be extended if rate skewing were not eliminated over that time frame.

Existing retail open access customers would get 1 chance to return the standard tariff rates, and after that the utility would be allowed to charge returning customers the incremental cost of service.

Capital and operating and maintenance costs associated with environmental compliance and low income energy efficiency fund contributions are recovered through a non by-passable surcharge payable by all customers.

Reliability standards in the form of generation reserve requirements would be imposed on both utilities and alternative energy suppliers.

This proposed legislation does address many of the key issues that need to be resolved with the implementation of electric restructuring in Michigan.

However, Consumers believes that most of these issues can and will be resolved through the existing regulatory processes, and we continue to focus our efforts in that direction.

Turning to asset sales, we're quite pleased with the progress on our 2004 plan, which is summarized in this slide.

Just last week, we announced the sale of our Parmelia and Goldfields pipeline interests in Australia for approximately $145 million in US currency, in a transaction we expect to close in the third quarter.

We've now announced or completed $200 million of planned asset sales for 2004, exceeding our goal of $160 million by at least $40 million.

Discussions are in progress for the sale of 1 of our Indian power plants, and we currently anticipate closing around the end of the year.

I'll now turn the call over to Tom for discussion of the second quarter results.

Dave, thanks.

In the next few slides, we'll cover our earnings results and outlook, as well as cash flow and capital structure.

We'll also add some clarity regarding a potential accounting change for treatment of contingent convertibles.

As shown on this slide, we earned 10 cents a share in the second quarter, both on a reported and an ongoing basis.

Earnings were on plan, and a little bit stronger than First Call estimates that averaged about 6 cents.

As shown on the right, utility results were off last year by 11 cents, enterprise was up 14 cents, and other primarily interest expense was better by 10 cents.

This reflects our plan to continue deleveraging the parent and to refinance at lower interest rates.

Weather was an equal factor in both quarters, this year and last year.

Compared with normal conditions, earnings were down 4 cents in each quarter.

Let's turn to the next slide for more detail on the utility and on enterprises.

At the utility shown on the left, earnings were down 11 cents compared with last year.

Lower revenue reduced earnings per share by 3 cents.

This reflected more customers choosing alternative electric suppliers, offset partially by the interim gas rate increase.

Financing costs were up a bit reflecting higher debt at the utility largely offset by lower interest rates, which were down about 79 basis points.

Also we have more shares outstanding from the conversion of Preferred securities in August of 2003, and this dilutes earnings per share by 2 cents here.

Taxes and other primarily reflect the absence of a Michigan single business tax refunds received in 2003.

Offset in part by the benefit from the new Prescription Drug Legislation.

At enterprise, shown on the right, earnings are up 14 cents from 10 cents in 2003 to 24 cents this year.

Dilution for more shares outstanding is 3 cents.

The 11 cents positive variance from market to market was attributable primarily to interest derivatives at Tujila.

Although most of this is in our full year forecast, it's too early to determine whether we'll be better or worse off at year end.

Last, lower debt and lower financing costs further improved earnings.

For the first half of the year, we earned 6 cents a share on a reported basis, 8 cents less than a year ago.

Adjusting for the loss related to the sale of Loyang in the first quarter, our ongoing earnings were 57 cents.

These results exceeded our plan and were 6 cents higher than last year.

As shown on the right side of this slide, utility results were off last year by 9 cents, enterprises was up 15 cents, and interest and other was flat.

Now let's turn to our guidance for 2004.

Our reported earnings are now expected to be about breakeven.

This is an improvement of 35 cents from our prior outlook, reflecting more favorable prices for asset sales, and deferral of sales no longer planned this year.

We continue to forecast ongoing earnings per share at 85 cents.

Now let's cover 2004 earnings sensitivities.

There's a couple of things I'd like to highlight.

First, these values reflect sensitivity, not probability.

For example, with most of the year behind us, the probability that we'll see a 10 bcf swing in gas deliveries is fairly low.

On the other hand, cool weather in July resulted in over 200 gigawatt hours of lower electric deliveries.

As you can see from the sensitivity, this has about a 4 cents negative impact.

We're comfortable that the July weather can be absorbed within our 85 cents forecast, assuming normal weather for the rest of the year.

Next, let's discuss a couple changes to the table.

We increased the sensitivity around the MCV Resource Conservation Plan by 2 cents.

This reflects higher gas prices and assumes that the plan will not be approved until late this year.

But as Dave mentioned a minute ago, we're optimistic that the plan will be approved by October 1.

That's what's in our 85 cents forecast.

Finally, we've added a sensitivity related to mark to market contracts.

With interest rates rising, this can be an important sensitivity.

As a result of our equity method investment in Tujila we have exposure to interest rate swaps that do not qualify as cash flow hedges, and therefore, we record our share of the change in the fair value of these contracts in earnings.

Also, the MCV partnership has long term gas contracts that are accounted for as derivatives with gains or losses reported on a quarterly basis.

So as interest rates and gas prices rise or fall, this improves or reduces earnings.

On a balanced risk and opportunity assessment, we've addressed cooler than normal weather in July and potentially a little lower mark to market related interest rates.

This permits us to continue to confirm guidance at 85 cents.

On the accounting policy front, we have a potential risk.

On the financing front, we have some good news.

On July 1, the EITF in a surprise announcement announced that contingent convertible debt should be counted as dilutive regardless of whether the contingent conversion trigger has been met.

It's estimated that there are $90 billion of these kind of convertibles outstanding today.

We have contingent debt of $150 million and preferred of $250 million.

Now, if this is approved later this year, this could reduce our earnings per share by about 10 cents.

We're considering alternatives that could reduce the dilution, but before acting, we're going to wait and see what the EITF's final decision is, and that's expected in late September, early October.

On the financing front, as Ken mentioned a little earlier, both CMS and Consumers refinanced their revolving credit facilities on Tuesday.

We extended the terms, increased the amounts, and lowered the interest rates.

We're pleased with the level of interest and participation in these new facilities.

Now, cash flow.

Consumers' cash flow, shown on the right, results in a $50 million cash balance at year end.

Our available bank facility is $410 million, up $175 million. $100 million is due to the new bank facility.

Cash flow has improved by $50 million, due mostly to lower capital expenditures and tax sharing benefits that are about $15 million.

At the parent, shown on the left, cash flow is $245 million, similar to the last forecast.

Cash at year end will be $400 million.

Our available bank facility will be $210 million.

This provides us with ample flexibility to meet all CMS debt maturities through 2006.

Now debt maturities.

Our debt maturities haven't changed since our last report.

At the parent, we have $192 million due later this year and just over $200 million next year.

We have several alternatives to meet these, including available cash, bank facilities, and accessing the capital markets.

For Consumers, our next maturities include a $300 million note in March and $141 million note due in June.

This totals $440 million, and we plan to refinance these later this year.

The next debt maturity will be in September of 2006.

Now before I turn the call back to Ken, here's a capital structure reminder.

As shown on the right, we've reduced consolidated CMS debt from $8.3 billion in 2001 to $7.3 billion in 2002, and $6.2 billion last year.

That's a 25% reduction in 2 years.

For 2004, we target debt without securitization and the effects FIN 46 at $5.8 billion.

This would improve our debt-to-capital ratio from 78% in 2002 to 68% this year.

This reflects physical improvements, but as most of you know, new accounting standards require that certain equity related financing be treated as debt.

Now based on these new accounting standards, we've switched $663 million of Trust Preferred from equity to debt, and consolidated $570 million of debt at MCV.

As shown with the dotted lines, this will increase our reported debt for 2003 to $6.9 billion, and for 2004, to $7.1 billion.

Including related equity our debt-to-capital, improves from 78% to 72%.

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

Thanks, Tom.

This slide shows our financial report card.

And with the second quarter results behind us, we remain on track for the year for all the benchmarks.

In the 1 improvement since the last quarter, I've changed the color of the cash flow before CapEx back to green from yellow.

As a result of better than planned cash flow from asset sales and other actions, I feel more confident that we'll reach our target here.

And that concludes our prepared remarks today.

So now we'd like to move to your questions.

Operator, please.

Thank you very much, Mr. Whipple.

The question and answer session will be conducted electronically. [Caller instructions] And your first question comes from Ashar Kahn of SAC Capital.

Please proceed.

Good morning.

Good morning.

Congrats on the quarter.

I guess Ken or Tom, I guess you mentioned that there was some possibility to reduce this convert from a 10 cent drag to 0.

Could you just elaborate a little bit more on how you plan to achieve that, assuming that the thing passes as it currently stays at the end of September or October?

Well, thanks.

I - - this is Tom Webb.

I think a couple of approaches. 1. we're going to be patient and see what does happen at the EITF.

We were all surprised by the announcement, and it's not perfectly clear what they will do when they get to the end of September.

So it may be just a risk that we don't have to address.

However, if it is, we want to see how they draft the rules for this, and it may be possible that using the net share settlement approach will continue to permit us to have this sort of financing without the dilution.

If that occurs, we may consider talking to some of our investors and seeing what their preferences would be, and there may be a chance to change some of the offerings, both the preferred and the debt, to see if we can do that.

And that might, therefore, diminish the dilution effect.

But the bottom line here, I think, is we decided we need to be patient, see what - - or how the rules are going to evolve, and then we'll determine what the right course of action is.

Okay.

And second if I can just go, I think it's in one of your slides to the press release, you were showing that you were earning - - or return on equity I think is on the electric side in excess of 11%.

And you plan to file a rate case, as you guys mentioned, at the end of the year.

So, just trying to sense is there, I guess, 1 way to lower the equity, the Commission in Michigan is more than 11% ROE in terms of what they're planning to give out to utilities.

Is there more equity planned or timing of equity or of dividend?

If you could just update us as part of your financial goals, how those might play in, into this rate case filing and earnings going forward.

Well, this is Dave Joos.

Let me just address that generally.

We are preparing that rate case.

And it's safe to say, and we've said before, that it would be in our intention to make some equity infusions into the utility.

The exact timing and amounts we've not sorted out yet, but they'll certainly be included in our filing when we make that later on this year.

With regard to the return on equity issue, I think you're aware that our last decision relating to that issue is in the last gas rate case, where they authorized for the gas side of the business 11.4% on equity.

On the electric side of our business, our authorized rate of return is 12.25%.

It's been that since 1996.

It's not clear what the Commission will do, obviously, with regard to rate of return and equity in the next electric rate case.

We certainly believe that with the restructuring in Michigan and the additional risk that that creates relative to the gas business that a higher rate of return is merited, and we'll make that case.

But of course we'll have to wait for what the Commission actually has to say.

David, but could you just guide us, what kind of equity ratio you're looking at the utilities optimally for this rate case filing?

Well, we haven't gotten that far.

We'll be making progress over time.

I think frankly we believe that equity capitalization at the utility in the longer term should probably be probably be north 45%, maybe even as high as 50%.

But obviously we have a ways to go before we get there, and we certainly won't be there in the timeframe this rate case.

But we are looking to improve it, and we'll certainly as we do that reflect that in our rate filing.

Can I go back to the general question on dividend restoration?

And any equity offering to further improve the balance sheet?

I think that really if you'd listened to our last couple of calls, I think maybe you asked the question a couple of times ago, that the answer is pretty much the same.

I'll give you the shortened version of it, therefore.

With the kind of Company that we're building here that says more modest growth, fairly decent returns on equity, it's got to be a Company that produces cash flow and pays a dividend in the long run.

We have that discussion with our Board in great detail a couple of times a year, and in less detail nearly every meeting we have with them.

I think we've also said that somewhere in our future and this may happen as opportunities present themselves, as it goes along, we need to issue more public equity in this Company to get there.

They kind of go together.

It's not necessarily the case that one proceeds another, but they do go together.

And that really where we are.

We're proceeding on our plan, we're continuing to do what we said in terms of ongoing earnings.

And cash flow is coming along, a little more slowly than we would like, but coming along.

And when it's judged that - - by our Board that it's prudent to do so, we'll see the dividend back.

Thank you.

I don't know, could I just add a little comment to that?

Sure.

Part of the important piece of our issuing more equity is to do what Dave mentioned a minute ago, is to be able to invest that into a good business like Consumers.

So we're hoping we can do that in a manner that will allow us to make that an accretive decision.

So that's going to be real important to us going forward.

But just going back, do the tests here in the rate case will be a forward test here?

Well, I guess it depend on how you want to define that.

We certainly will be projecting our costs for 2006.

And incorporating those in the rate case, and we think that's the right way to do that.

Whether you call that a forward test here or whether you call that an adjustment from past expenditures based on known and measurable increases in costs, really sort of doesn't matter.

I think you get there either way.

Thank you very much.

Okay.

Thanks.

And your next question comes from Steve Fleishman of Merrill Lynch.

Please proceed.

Hi, good morning.

Hi, Steve.

On your earnings sensitivity to mark to market in the presentation, is that a symmetrical sensitivity to the degree rates go down and gas prices go down, there's a negative impact?

Yes, it is.

That's an up or down.

But keep in mind what makes it difficult for determining that, it's obviously based on the curve of 10 years of, you know, hedges on the interest side and a curve on gas contracts going out.

So I'd caution to be careful about not looking at just today's prices or today's interest rates because they get smoothed out in those curves.

But yes, it is.

It goes up or down.

And are - - I don't recall you breaking this out as a factor, maybe I just - - neglecting to remember.

But had you broken this out before?

We did not call this out on the sensitivity slide before.

But since we had some good news in the second quarter here, we thought that would be a good add to this slide.

To help everybody get a look at that.

And why can't these contracts be - - since I think they were set up to, as hedges, why can't they be accrual accounted?

Well, they're not effective.

And you may recall the restatements that we made many months ago.

When FAS 133 was introduced several years back, it had very specific requirements about how you would have to file and manage the information.

Our contracts, for instance, in Tujila are all designed to be direct hedges against the debt that we have in place.

However, on some of those contracts, the technical proceedings were not perfectly done, so, therefore, they're not effective hedges.

And you need to take the fair value changes through the income statement as opposed to if they're effective, as you're referring, through OCI and the balance sheet.

Okay.

Okay.

And neither long term contracts of this sensitivity will be there, you know, through the contract life, basically?

It will.

But it will of course diminish over time, as you're paying down the debt.

Okay.

Same thing on the MCV natural gas contracts.

They also as you burn the gas and using up the contracts, that also diminishes as you go through time.

Okay.

And overall, I know you feel you're on track to meet your operating earnings guidance.

How - - if you look though, at the pieces of the Company, the utility and enterprises, would you say 1 of them is ahead of plan, the other 1 is behind plan, are they both kind of on plan?

Well, I'd say that we're probably doing a little better on the enterprise side, and just slightly softer on the utility side from where we were on our plan.

And we're doing a little bit better than we thought on leveraging.

We're keeping up the pace on that, and that's helping us a bit, too.

Okay.

Thank you.

Good.

And your next question comes from Alie, Agha of Wells Fargo Securities.

Please proceed.

Thank you.

Just a couple of questions.

First off,Tom, when I looked at your consolidated income statement for the quarter, it appears you had a tax benefit that flew through the numbers.

Could you explain what caused that?

And related to that, what is the effective tax rate for the year you're using that corresponds to your 85 cent guidance?

Well, the effective tax rate for the quarter, if I can start with theirs because that's what makes the anomaly as well for the year, is actually 72% negative.

And that has to do really principally with the deferred income on the [jorff] side of our business that doesn't run through there.

So when our income numbers are low and we have that deferral, we get that benefit.

So that's really what happens there.

And then I think that's basically it on the income tax benefit.

Missing anything?

No.

Okay.

So if you were to look at it on an annualized basis, how should we think of the tax rate?

Yeah.

I was just looking to my advisors here, and it will be south of the normalized rate.

I don't have a precise number to give you on that because a lot of it depends on the timing of certain transactions that we're doing.

You but just consider it something less than the 35% level.

Okay.

My other question was looking at the cash flow slide that you guys have laid out, there were a couple of I think pieces that have moved around since the last quarter when you put that together.

I just wanted to clarify on that. 1 being, I think the Consumers cash flow or operating cash flow I thought was 740 is now 700 for the year.

Is that right, and what's causing that to come down?

Ali, that's right.

And the reason for that is gas prices have crept up a bit more.

We had 5.85 as a gas price in the first quarter release when we put that out.

And we're up to about $6.14.

And that's the primary piece of that adverse operating source of cash.

I see.

And I think you've listed new financings at the parent of 215.

Last time that was around 190.

What drove that up and what is the status that new source of financing?

Well, what I would do is just sort of lump that together.

We were just reassessing what we would do and the size of our financing this year.

And we haven't gone public with how we're going to do that financing just yet.

Okay.

And last question, at the Consumers level, the 590 million of financing you listed, when should we see that, and what should that be?

Well, that financing program will probably be sometime, I'd say, before we get to the autumn.

But again, that one's coming together.

And I'd say watch this spot.

We think that the market's pretty good, and we're in a nice position to be able to do that in the not too distant future.

Thank you.

Thanks.

And your next question comes from Tim Shaler of Pimco.

Please proceed.

Hi, Tim.

Hi, guys.

When we're thinking about, - - or we see this equity infusion going from the parent down to Consumers Energy, and you all talked about the need to raise common equity to help support in coincidence with reinstating the dividend.

How do we think about how the $150 million is going to get funded?

Well, I think the way to consider that is out of our basic cash generation that we have, for example, the asset sales could be attributed to going into more debt reduction or you could contribute them to part of the contribution into Consumers.

So it's difficult to say what drives what.

Bit we in our total plan determined that we wanted to get about $150 million in this year.

And as you can see in the overall cash flow, we're in a good position to do that and still have a substantial level of cash at the end of the year.

And very solid bank facilities, incremental to that.

So we should be able to do what we need to do.

So I would think of that as not really any particular financing, but more as our using some of our available cash resources to invest in Consumers.

And it's a great time to do that in terms of how this could line up with rate cases that are in progress and would be filed for electric later.

Incremental to that, though, like we've talked, I think in the past, we think it's going to take some equity offerings at the parent to support some additional investment in Consumers.

And that's a little bit what Ken was describing earlier.

And that's beyond this 150, that's in '05, perhaps?

That's incremental to this 150.

And probably beyond this time frame.

Okay.

What - - you're talking about incremental investment.

Any idea how much incremental investment would be necessary beyond '04?

We haven't said the amount yet.

And I know everybody's anxious to have us do that, and we're anxious to say, too.

But this is just not the time as a Company.

We have our annual business plan reviews coming up in the month of August.

And those are very important to us to get through and solidify our strategy that we're staying on.

But we're preparing to do all the right things, and we're anxious to share that information in the not too distant future.

I think it's safe to say necessary isn't the right word.

It's an opportunity as we look at it to infuse equity in the utility, so long as we can get a relatively quick return on that equity.

And we think in the rate case environment that's achievable.

So it's more of an opportunity.

If you look at that, and as Ken or as Tom mentioned earlier.

We would look to make it accretive from a timing perspective.

Thank you.

Thanks,Tim.

The next question comes from David Grahaus of Copia Capital.

Please proceed.

Good morning, all. 2 quick questions for you.

On the MCV and the sensitivity you've given, does that assume - - does the guidance assume that you'll reach a settlement on October 1, largely in line with what you all have put forward?

Or does it assume some of that gain will be given back to customers?

Well, it assumes that we do that this year.

Largely that sensitivity in the MCV relates to the mark to market piece of it.

I think that's what you're probably referring to.

And that has to do with the fact that the MCV has certain contracts that have flexibility in that if we get approval before the end of the year, such that MCV is operated differently than it has been historically, then under the rules additional gas contracts would subject to mark to market and that gain would be created.

Now there is a second sensitivity that shows up on that chart, and that has to do with timing.

Again in our forecast, we assumed that it happens October 1.

I think this number would reflect if it doesn't occur this year.

So what exactly the settlement looks like is not really reflected in the sensitivity?

Well, I'd prefer not to comment on the details of the settlement because, frankly, it's not done yet.

We've been working on it.

And as you might understand, the sharing of the benefits between customers and the utility are a part of that discussion.

Okay.

But you've made some sort of estimate of that in your guidance?

We have.

Okay.

And then the CapEx number, I think you said there was an improvement at the utility for the year.

You're looking at improving about 25 million.

What's driving that?

Well, I think it's just across the board paying real close attention to how much money we're spending and how we're spending it.

There's no question that all of our employees are sensitive to that cash flow issue.

It's part of our incentive plan for all of our nonunion employees, and they just do a good job watching every dollar, I think.

Okay, great.

Thanks for the time.

Thank you.

Your next question comes from Ben Sun of Luminous Management.

Please proceed.

Good morning.

Good morning.

Just wanted to ask you, just in sort of a broad terms what you're seeing in terms of customers' attention and competition, and if you can kind of elaborate on how that's been going there?

Well, let me do that in relatively broad terms.

We a little over 800 megawatts of total customer choice.

We saw about 100 megawatt roughly increase in that earlier this year.

Shortly after, frankly, the Public Service Commission came out with an order that established a surcharge in Detroit Edison's Case.

That caused some attention to shift from their service territory to ours on the part of the retailers.

And we were a little concerned about that.

We talked about the potential for in our queue of seeing as high as 1,100 megawatts of customer choice by year end.

Frankly, we expected that that would flatten out during the summertime, and it has.

And so we've not seen a continuation of that trend.

Whether or not we see some additional uptick in the Fall could we'll just have to wait and see.

But I think we're more comfortable right now that it could get to that range, but the trend has slowed down a little more than we had originally planned.

Okay.

Thank you.

And your next question comes from Jay Hatfield of Zimmer Lucas.

Please proceed.

Hi, Jay.

Good morning.

How you doing?

Good, how are you?

Good.

I just wondered if you could give us any more details as to what '05 and '06 asset sales might look like if any?

In terms of what assets could be considered and any kind of ranges of sale prices?

If you can give us any updates on that, that would be great.

Yeah, I don't know what we're prepared to get into a lot of detail there.

There's no question that our asset sales are falling off from what they've been in historic years because we've been successful in moving a number of the assets that were on the block.

We've said before that we don't intend to stay in India long term.

And we have 2 power plants there.

We've mentioned that 1 of those we expect to move this year.

The other one would likely occur in '05 or even '06.

In South America, we have a number of assets, and we've said that our intention is to retain the Atacama pipeline and the associated power plant.

But the remaining assets we don't necessarily intend to retain long term.

But again the Argentine situation is probably not straightened out yet to the point where we think we can get a fair value for those assets.

And we're certainly not in a fire sell mode that would cause us to move them more quickly.

I'm sure we'll provide you some more guidance probably early next year on the specifics in that regard.

But don't look for the asset sales numbers to be as big as even this year.

Probably in the range of half.

And that's just a very rough number.

Like I said, we'll give you more guidance later on.

Great.

Thank you very much.

Thank you.

And your next question comes from Raymond Lum of Bear Stearns.

Please proceed.

Hi, Raymond.

Hey, guys.

Just a couple of questions.

And I may have missed this, and I apologize.

Securitization, can you talk a little bit more about the timeline of that?

And it looks like you're projecting this for '05.

When do you need a decision, and what's sort of been the big holdup there?

It's been sort of an outstanding issue for a while.

And if you could also address the debt reduction that you've outlined, about $1 billion it that matured debt or are you including Trust Preferreds and so forth?

Thanks.

Let me have Tom Webb take the latter part of that question, but I'll address the securitization question.

You'll all recall that we filed this early last year, and the Commission came out with an order last summer.

But the order didn't allow us to actually sell the bonds because of the way they structured the surcharge.

And in effect it wasn't by-passable.

We filed for rehearing in that, after quite a while before there was activity.

And then earlier this year, the Commission set that for hearing.

Those hearings are all now completely done and frankly that decision is , you know, available at any time the Commission chooses to issue it.

We certainly can't determine exactly when they'll too that or exactly what it will say.

Part of the complicate, of course, I mentioned earlier is the implementation costs associated with open access, where at 1 time incorporated into that securitization order they've now been removed.

And so really all that's left are Clean Air Act related costs.

As I said in my prepared comments, those Clean Air Act related costs are clearly recoverable in 1 of 2 ways.

Either through the rate case that we'll be filing, or alternatively in a more accelerated manner, that's provided for in Michigan's Restructuring Law.

And we have a filing ready to go that route, as well.

Again, securitization is not as critical as it used to be.

We still think it's the most cost effective way to deal with these costs from a customer perspective.

And certainly from our perspective, it would help us on the rating agency look at our balance sheet.

But we don't see it as critical as perhaps it was last year when we file it.

We're just going to have wait and see what the Commission does with it.

And then to address that $1 billion debt reduction, for everyone else on the call that's referring to what was slide 14 on the cash-flow forecast, I'm pretty sure.

Where it calls out debt retired at $1.10 billion.

Think of half of that, think of the $555 million as sort of directly related to the securitization, taking that and being able to retire debt and that's what makes the economics work so well for it.

And then think of the large portion of the rest as the $441 million of maturities that are coming due in the first half of next year, which we may be able to address little earlier than next year.

And I think that's the best way to characterize that.

Okay.

Great.

Thanks, guys.

Thank you.

Your next question comes from Robert Howard of Prospector Partners.

Please proceed.

Hi, I just was wondering little bit about the regional power situation in Michigan and, you know, what are wholesale prices looking like?

And what's sort of that - - is there going to be tighter capacity or how are things looking there?

Well, let me just say broadly that there's quite a bit of excess capacity now in Michigan, as well as in the upper Midwest in general.

Now most of that capacity, that excess capacity is new gas fired capacity.

There will be some peaking a lot of gas combined cycle built in both the [Ekar] region and upper Midwest and also in Michigan.

So capacity is really fairly available, and for that reason, power prices have been relativity well behaved.

We have seen a little bit more volatility because gas, when you get particularly high loads, gas tends to be on the margin more than it used to historically.

So on particularly hot days, which unfortunately we haven't had enough of quite this summer, we have seen prices, say, in the $100 range.

But generally speaking, they've been a lot more behaved than that.

And nothing like we saw a few years ago.

Okay.

Great.

Thanks.

Thank you.

And your next question comes from Charles Fishman of AG Edwards.

Please proceed.

Hi Charles.

Thank you.

Escrow change, I noticed that's down from the latest presentation.

Is that because you pulled Atacama out of that?

Well, it's for a couple reasons.

We have pulled Atacama out of there, and we have, as you noticed up above, a little bit better number on our asset sales, as well.

So there's some other in there that comes out.

We're still expecting that escrow change to be in that $165 million neighborhood, just the way you saw it before if you pull that piece out.

Okay.

So - - but if Atacama, I believe I heard things were improving, but let's say they continue on that track and you were able to do that refinancing, would that increase that line by 50 to 100 million?

I would not expect that to occur this year.

I think we've got to get through the winter season down in South America, get some stability and have that run smoothly for a while.

If there is an opportunity, maybe some is some piece of guidance we can give.

That's the kind of thing that will probably help next year as opposed to this year.

Okay.

Thanks, Tom.

Yep.

And your next question is a followup from Ashar Kahn of SAC Capital.

Please proceed.

Tom, what can we expect in your September analysts' presentation?

Will you give us something '05 related or is it going to be more an update to the plan?

And my second question is, are you going to be planning to ask for an interim hike on electric or no?

Well, let me take the first part of that.

I'll look to Dave maybe for the second part of that.

On the first part of that, when we want to give everybody a good update in September, we will not plan at that time to actually provide new guidance or anything out for 2005.

But what we would like to have is everyone gets a good chance to meet the management team, how it's changed, we have John Russell now running our utility.

And to give you a chance to meet and see these folks and talk to them about the things that they're doing.

And also give you a nice update on where we are going along our plan because I think you'll be pleased with the progress that we're making.

In terms of more specific on what's the outlook for 2005, as Dave mentioned, that's something that we'll probably address as we get into the new year.

With regard to the rate case, I don't think we've made a decision whether we'll ask for interim relief or not.

And to some extent, that will depend on what actually happens on stranded costs and things of that nature.

So, you know, stay tuned to that.

I think we'll see some decisions as we've said, on those issues early in the fourth quarter.

And not too long after that we'll be preparing to file our rate case.

So we really can't say until we've seen some of those issues and how the Commission deals with them.

And David, what would be the effective date of that rate case?

Well, our plan would be to make it January 1 of 2006.

You'll recall under Michigan's Electric Restructuring Law, that's when all of the residential customers go back onto normal rate making.

Okay.

Thank you.

Okay.

And you have no further questions at this time.

I'd like to turn the conference back to Mr. Whipple for closing remarks.

All right, thank you very much.

And thank you, ladies and gentlemen for your usual good questions.

As you saw on our report card page, we're pretty much on track on all of the important items, including our ongoing earnings guidance for the year.

But there's a lot of year left, and we're going to be doing our best to keep all those checkmarks green.

And we'll look forward to reviewing our progress with you at the end of the next quarter.

Thank you very much.

This concludes today's conference.

We thank everyone for your participation.