CMS能源 (CMS) 2005 Q1 法說會逐字稿

Good morning, everyone and welcome to the CMS Energy 2005 first quarter financial 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 12 noon Eastern time and running through May 11th.

This presentation also being webcast.

An audio replay will be available approximately two hours after the webcast and will be archived for a period of 30 days on the 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 and Treasurer.

Please go ahead.

Thank you.

Good morning and thank you for joining us.

With me today are Dave Joos, President and Chief Executive 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.

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

A reconciliation of each of these measures to the most directly comparable GAAP measure is posted on our website at www.cmsenergy.com/invest.

Now I'll turn the call over to Dave.

Thanks, Laura, and good morning, ladies and gentlemen.

We're pleased that you've joined us today for our first quarter earnings call.

As is our usual practice, I'll start the presentation with a brief update on the business, then I'll turn it over to Tom Webb for a more detailed discussion on the first quarter financial results and outlook for the remainder of the year and then we'll close with Q & A.

We had a good first quarter by just about all measures and have set the solid foundation for another good year.

Today, we reported first quarter net income of 150 million, or $0.74 per share, on a GAAP basis.

After our normal adjustments, including the effects of asset sales, our income was 148 million, or $0.73 per share.

These results are much higher than last year and ahead of plan.

As Tom will detail shortly, a large part of the difference from last year is the absence of a large first quarter loss we took in 2004 with the sale of the Loy Yang plant in Australia.

The other large difference, which also puts us well ahead of plan year-to-date, is a higher than planned mark-to-market gain at the MCV partnership caused by higher than expected forward natural gas prices.

Tom will show you that much of this gain should reverse by year-end as the MCV burns through some of its gas portfolio, though how much will depend on the behavior of forward gas prices over that time.

I'm pleased to tell you that we're maintaining our full-year earnings guidance unchanged at about $0.90 per share despite the dilutive effect of our successful March common stock offering.

Tom will share more details on this in a minute.

Our equity offering allowed us to accelerate improvement to our consolidated debt ratio and especially to accelerate the shoring up of our equity that was a key element of our business plan.

As you know, we are before the Michigan Public Service Commission with an electric rate case and plan to file a gas case within a few months.

So the timing was good for investment in the utility.

The regulatory agenda, which I'll review in a minute, is on track.

Operationally, we had a good quarter, though we did fall short of our generation availability goal at the utility.

We continued to meet all of the Michigan Public Service Commission's performance standards for electric distribution, aided somewhat by low storm activity.

As I indicated, availability of our utility generation at 82% was slightly behind plan for the quarter due to an unplanned outage to Palisades to address a condenser air leak and a brief outage at our Campbell 3 plant to repair a boiler tube leak.

With both plants operating well since those outages we're still optimistic that we can achieve 2004s full-year availability target of 86% for the base-load fleet.

Over at Enterprises, generation availability was solid at ninety ce -- 90% during the quarter.

That metric now includes the performance of our newest plant, Shuweihat S1, in the United Arab Emirates, which began commercial operation late last year.

Shuweihat, at 1500 megawatts and 120 million gallons per day of potable water production is the world's largest independent power and water desalinization product.

The plant has received a number of safety and environmental accreditations and was recently named Desalinization Plant of the Year for 2005 by Global Water Intelligence.

In April, the Utility Workers Union of America ratified a new five-year labor agreement with consumers.

We're pleased with the terms and believe it was fair and constructive for all parties.

Importantly it removes the uncertainty that always accompanies contract expirations.

In March 2005, the Nuclear Management Company, which operates the Palisades nuclear plant, applied for a 20-year license renewal on behalf of consumers.

The current operating license expires in 2011.

The Nuclear Regulatory Commission typ -- typically takes two to three years to review a license renewal application so expect their decision in 2007.

Palisades has been an important base-load plant.

We look forward to another 20 years of production.

In February, we sold our interest in GVK, a 250 megawatt gas-fired plant in India for 21 million, a $3 million pretax gain.

Just last month, we sold our interest in the Scudder Latin American power fund for 23 million.

With these two sales, we completed our asset sales plan for the year, however, we are continuing to look for opportunities to move non-strategic assets that weren't in our 2005 plan.

In fact, we just completed the sale of a gas turbine that was purchased several years ago for a since abandoned expansion at the MCV.

That sale generated $15 million in cash.

Finally, the Resource Conservation Plan approved by the Michigan Public Service Commission in January and put into full effect within two days has been very successful in delivering the expected benefits for the company and our customers.

Over the first three months of the program, we've conserved about 9 billion cubic feet in natural gas and generated net savings of approximately 26 million for distribution to customers, MCV and consumers a little ahead of our plan.

Little has changed with regard to our regulatory agenda since our March conference, so I'll just remind you of the major proceedings and a few key dates.

I'll also give you a little more detail on the staff's filing in the regulatory asset case.

Our $320 million electric rate case has been before the commission since last December.

The schedule calls for a proposal for decision from the administrative law judge in October, so it would allow for a decision from the commission by year-end.

The next key date is June 3rd when the staff and intervener filings in the case are due.

When we held our March conference call, the Michigan Service Commissions staff had just filed its position in the regulatory asset or 10-D-4 case.

We gave you a preliminary assessment of their filing at that time, so here's a little more detail.

The staff advocated three key adjustments from our filing.

First, they advocated that cost deferrals allowed under the law should end when customers are no longer subject to rate caps which accounts for the lion's share of the difference, 162 million.

Recall that the rate caps ended for large business customers at the end of 2003 and for all but residential customers at the end of last year.

Second, the staff uses average rather than year-end balances for the calculations, which frankly is inconsistent with the method that has been used in securitization and stranded cost calculations and that accounts for a $45 million difference.

And finally, they've omitted investments made in 2000, but prior to the effective date of the law, which was in early June, accounting for a $39 million difference.

The law is admittedly not very specific as to these details so we'll have to wait for the commissions order sometime after mid-summer for the final numbers.

Finally, the gas rate order issued in October 2004 provided for a two-year surcharge of $58 million annually.

The order required consumers to file a gas rate case within two years.

We plan to file this case in the middle of 2005 to recover costs related to increased equity levels, larger rate base and increased spending for safety and pipeline inte -- integrity.

Now, let me turn the presentation over to Tom for more details on our financial results and outlook.

Tom?

Thanks, Dave.

And my welcome to everybody on the call today.

We appreciate your joining us.

As Dave mentioned, we had a good first quarter with reported earnings at $0.74 a share.

Adjusted to exclude the gain on our sale of our GVK plant in India, results were $0.73.

That's up from $0.47 a year ago.

Results include $0.32 of mark-to-market gains related to the MCV-RCP order issued in January.

As contracts are used, much of this gain is expected to reverse during the year and I'll cover this in a little bit more detail in a couple of minutes.

We also issued 23 million shares in common stock in April, with proceeds of $272 million.

These proceeds, along with those from the offering last October, have been invested in the utility.

In total, we've invested $800 million in consumers since last August.

We also refinanced $850 million of debt.

We extended maturities and lowered our interest rates.

This contributed towards reducing our average interest rates by about 70 basis points at the parent and 30 basis points at consumers.

Reducing interest expense is an important part of our plan to improve cash flow and to grow our earnings.

And reported earnings at $0.74 a share were up from a loss of $0.06 last year.

Recall last year we took a charge of $0.50, or about $81 million, related to the sale of Loy Yang.

Excluding the impact of the gain on the sale of our GVK generation facility in India, our adjusted earnings were $0.73.

Now, please note we're using the term adjusted instead of ongoing.

This is only a change in nomenclature and not a change in what we adjust.

We have little to adjust this quarter unlike the substantial change a year ago from the sale of the generation business in Australia.

Compared with last year, adjusted earnings were $0.26 better.

Now let's take a look at why that is.

Compared with the first quarter of 2004, the utility was off $0.09, Enterprises was up $0.47, dilution was $0.19, and interest savings were about $0.07.

And you can see that as we work from left to right on this slide.

At the utility, planned higher operating expenses include for example increased pension and benefit expense, increased depreciation from higher investment and continued under-recovery of costs related to the MCV power purchase agreement.

Operating savings from the RCP partially offset these increases.

Lower revenue reflects customers choosing alternative electric suppliers with our load loss rising from 758 megawatts to 895 megawatts this year.

This is, however, down from the load loss we expected and below the year-end 2004 level, which was at 926 megawatts.

Customers are returning.

Now electric utility rev -- revenues, however, continue to suffer from weaker industrial sales.

They're down 4.8% from a year ago.

Stronger residential and commercial sales more than offset this decline.

Higher gas rates and other added a nickel.

At Enterprises, the increase largely is due to our share of the MCV mark-to-market gains of $0.32, as you see in the green bar there, compared with losses of $0.08 last year, also shown in the bar.

For clarity, this $0.32 is $0.19 higher than we expected for the first quarter.

And as you'll see in a minute, this does not flow through in our full-year results.

And also, the Shuweihat plant, as Dave mentioned, which began commercial operation in September of 2004 contributed to the improved earnings.

Increased shares outstanding resulted in dilution of $0.19 and that's shown in that red bar.

At the parent, our deleveraging plan and lower costs from favorable refinancing reduced interest expense by about $0.07.

Now, as a result of the MCV resource conservation plan approved in January, the MCV partnership is required to treat associated gas contracts as derivative contracts.

The change in fair value of these contracts is recorded in earnings each quarter.

Now, as we just discussed on the last slide, the first quarter 2005 gain was $0.32.

And as you can see in the left box, the majority of this gain is expected to reverse in the remaining quarters of this year resulting in a net mark=to market- benefit of $0.12 for the year.

As you can see over in the right box on this slide over time, those mark-to-market impacts net to 0.

Now, with gas prices up almost a dollar from just a few months ago, the $0.12 gain for the year is, however, larger than reflected in our prior full-year guidance.

But importantly, we are not counting on this larger gain to meet our guidance.

So let's turn to our guidance for 2005.

We're reaffirming, as Dave mentioned, our adjusted EPS guidance of about $0.90.

With a recent equity issuance, dilution is up about $0.07.

We plan to offset this with lower than planned operating cost and insurance premiums.

With higher gas prices, the mark-to-market gains have increased and we're assuming that the gas prices could retreat.

So again, we're not counting on the incremental mark-to-market gains associated with higher gas prices to meet our guidance.

Now here's some assumptions behind these earnings for the year and the impact of potential changes to those assumptions.

And let me cover just a few of them.

Each 100 gigawatt hour change in electric deliveries can impact our earnings by plus or minus a penny a share.

A 10bcf change in gas deliveries could impact profits by $0.04 in the same manner.

Our present forecast of NYMEX gas prices for the remainder of the year, $7.85.

Each $0.50 change in gas prices up or down will impact operating savings from the MCV-RCP by $0.03.

The impact of changes in gas prices beyond the MCV is about a penny.

With most of our coal contracts complete, sensitivity to changes in coal prices at the utility are now pretty small.

We've talked about mark-to-market, but keep in mind the change in gas prices of $0.50, up or down, will impact mark-to-market or gas derivatives by $0.03 in the same direction.

A 50 basis point change in the interest rate curve has a similar $0.03 impact.

We've revised our retail open access load-loss projection downward to arrange between 925 and 1,000 megawatts at this year-end.

As of April, the load loss was about 893 megawatts.

That's down from year-end 2004, which was at 926 megawatts.

Several of our customers have returned to bundled service.

Now, let's turn from earnings to cash flow.

As shown in the right box on this slide, consumers cash flow results in -- in cash at year-end of $40 million.

That's a cash level of $40 million and $475 million available from our $500 million bank facility.

Operating cash flow at 605 -- $655 million, which is toward the top of that box, is down 90 million from the level in our last call, and that's primarily because of higher gas prices.

Capital spending, dividends and tax sharings are equal to the outlook provided in March.

On the financing slide, our work is largely complete.

Then you see that at the bottom of this slide.

And that includes the 550 million of new equity.

Now at the CMS parent, which is shown on the box in the left, cash at year-end is forecast at $255 million with $195 million available from our CMS bank facility.

You see that at the bottom of the box.

Asset sales of $44 million are complete.

But with the sale last Friday of the surplus turbine, that Dave mentioned, asset sales will actually grow to about $59 million not shown here.

Forecast dividends from consumers and Enterprise businesses, as well as tax sharing, are up about $15 million.

They exceed interest, preferred dividends and our overhead costs.

Year-to-date, we invested $550 million in consumers, 200 million in January and 350 million in April.

Since last August, we invested 800 million in consumers improving our equity cap-to-capital ratio at consumers to 43%.

So let's talk about why cash flow at consumers was down from our last call.

Higher than planned gas prices at $7.46 compared with $6.59 in our original plan reduced consumers cash flow by $85 million.

Now that's 85 of the $90 million of cash flow fall-off that we mentioned with the last slide.

Gas prices have retreated to $6.87 since our forecast was complete.

And if they remain at that level, our cash flow change will improve from the $85 million deterioration in our forecast, shown they bottom of that slide, to $30 million deterioration.

That's much closer to our plan expectations.

So let's check our 2005 report card.

We're on target to deliver earnings at about $0.90.

Cash flow is off a bit due to higher than planned gas prices.

This would push the recovery through our GCR into 2006.

Accordingly, for 2005 we're giving ourselves a yellow caution check.

We're still working to meet our target.

Actions like the unplanned sale of the surplus turbine for $15 million and perhaps lower gas prices along with other things we're working on will help.

Our capital structure outlook is stronger with our debt to capital ratio forecast at 66%, a couple points better than target.

Also, at $7.1 billion, our debt levels are a bit better than target 2.

We still have a lot of work to do and we're sticking to our plans to complete that work.

Thanks for listening and now we'd like to open up the call to take your questions.

Operator, can you help us on that?

Thank you very much, Mr. Joos. (OPERATOR INSTRUCTIONS) And our first question comes from Greg Gordon of Smith Barney.

Please proceed.

Thanks.

Good morning.

Morning, Greg.

What was the -- what was the assumed year-end mark-to-market in the guidance at the beginning of year?

I know now it's twe -- $0.12. what was it at the beginning of the year?

Well, on the MCV mark-to-market, it would have been about $0.03.

We're up about $0.09 from where we expected to be.

And Greg, the way we've addressed that, we've just put a contingency right into our forecast because we think there's a fair chance that gas prices might retreat and we don't want to count on that for delivering our guidance.

Thanks.

Second question on the cash flow impact of paying higher gas.

Any regulatory mechanism to file for recovery of that over time?

Well, keep in mind that this -- the bulk of this is at the utility and we do get recovery of that through our GPR.

What will happen, though, is it will push back that recovery a little bit as gas prices have come up a bit so we'll see the recovery largely in the first quarter of next year.

But we're very focussed on meeting our cash flow targets this year.

So we're looking for offsets.

Okay.

So, but -- but this isn't cash flow or margin that in the long run is foregone?

It's just deferred and recovered?

That's it.

As long as it's that part that's associated with the gas prices, that's correct and that's the bulk of our issue right now.

Right.

The 85 million that you -- that you -- you -- you -- you highlighted?

That's correct.

And then you said you also are ahead -- ahead of schedule, ahead -- ahead of your -- slightly ahead of your budget on what the MCV resource conservation plan might deliver relative to what you set out as the beginning of the year goal, is that correct?

Right.

We're -- we're running a little bit ahead of that.

Probably about -- our forecast now may be about 20% higher than the original $49 million we projected for the year.

But, as you know, that can change based on power prices and gas prices.

Okay.

And then you -- you indicated you're quite pleased with performance at Enterprises.

If you continue to perform at a run rate in terms of availability, like you did in Q1, would that put you ahead of budget for the year there?

Oh, I think so.

I think we'll be in good shape because Enterprise is actually doing a good job throughout its operations.

So whether it's the earnings side or the cash flow side, we're still on guidance.

Thank you very much, guys.

Thank you.

And our next question comes from the line of Ali Agha of Wells Fargo Sep -- Securities Please proceed.

Thank you, good morning.

Good morning, Ali.

Looking at the variance data that you gave us in your full press release, some of the items in there like the under-recovery due to planned outages that hurt you by $0.04 in the quarter as well as the higher expenses which you alluded to in your comments as well which were a negative year-over-year $0.06 variance, are any of those items that could be potentially changed as the year progresses or should we expect that those kinds of hits will continue throughout the year?

Well, Ali, the way to address that is some of the items we called out on that page as well as in our -- we call it the waterfall, that shows the quarter-to-quarter difference from a year -- this year to a year ago are things like higher spending, so you'll see that in our depreciation, things like higher benefit costs where we resumed our 401k match for employees this year.

You'll continue to see those during the course of this year as you compare back to last year.

And those are the important ones.

Those are the meaningful ones in terms of size.

Ali, let me just mention, of course, on the unit outages, I talked about an outage at Palisades and one at our Campbell 3 plant. and of course through the remainder of this year, our residential customers are still capped.

So even though there's a power supply cost recovery mechanism that will be fully in effect January 1st of next year, we still, if we have unit outages that are unanticipated that can affect our recovery and that $0.04 that we talked about in the first quarter due to planned outages this year would not be recoverable because it relates to those capped residential customers in go-forward basis it would be.

I see.

So just to [INAUDIBLE - heavy accent] that their view would see that recovery in '06, there would be some catch up in '06 we should think about?

No, no.

We won't catch up.

I was just pointing out that that mechanism will go fully back into place in '06.

But for the remainder of this yea we still are exposed if we have unit outages to not fully recovering those incremental costs because of the ongoing caps on the residential sector.

I see, got it.

On the effective tax rate, my sense is we'll start to see the impact of the tax change positive impact starting for the rest of the year.

What should we be thinking about as an effective tax rate for the year on an -- when we look at ongoing earnings?

Yes, let me first go back to your prior question and also just reconfirm that what you see in our numbers is consistent with where we expect to be for our plan.

So that's why we haven't changed our guidance.

So all those ups and downs are going with -- where we expect it to be.

Now, on effective tax rate, I'd like to split that into two pieces and tell you that because of our earnings levels we're seeing some tax -- effective tax rate numbers like about 33% for this quarter.

That really aren't representative of where we'll go through in time.

And what I'd like you to think about is a normal tax rate off the 35% of something in the neighborhood of 20 to 25%.

We have some earnings overseas that we do not have to recognize in our taxes, and that'll take you down to somewhere between that, say, 20 and 25%.

More on an ongoing kind of basis.

The other important point to know when you think about taxes is that in terms of payments, if we're thinking about cash flow, we're probably not going to be in a -- in a paying position for some time.

So you need to think of, I think, both sides of that equation.

Right.

And final question, Dave.

How frequently does the question of the common stock dividend come up in board meetings and any further clarity on some of the parameters we should be thinking about as you contemplate when to restore that?

Well, as you know, it comes up in every meeting.

And you're one of the people that always asks about it as -- as do a lot of other folks.

We -- we've said consistently that it's something that we focus on.

But, I'll tell you we don't have anything new to report with regard to any plans in that regard today.

Okay.

Thank you.

Thanks, Ali.

And our next question comes from the line of Ashar Khan SAC Capital.

Please proceed.

Good morning.

Tom, could you guide us a little bit the waterfall chart that you'd given us three month -- or two months ago as part of year-end earnings for '05.

You had mentioned that utility was going to be hurt by about $0.31 for O&M, about negative $0.01 for regulatory and $0.18 was the revenue increase.

Now, counting this dilution end, could you just tell us what those deltas are, what you're seeing those deltas to be now for -- for the year?

And similarly on the Enterprises, I just wanted to see what is -- what are the goods and what are the bads?

How do they negate themselves on those line items if -- if you could help us along?

Sure.

I'll give you a general sense of where those are.

And for the listeners, I'm going to quote a couple of numbers from the old March earnings call.

When we looked at the utility, we were looking at, for the year, about $0.14 down compared to 2004.

And what Ashar was referring to is about $0.31 of operating cost, as a negative inside of that.

Remember about $0.16 of that is related to benefits and we still expect that to occur that way.

And then in the balance of the cost, we're doing some things here that are important to our business, which is pushing down our rate of return a little bit.

But they're the right things to get done and those are still going to occur this year and I don't want to make any changes that way.

If you slide all the way over to the dilution side, we thought back at that time we might be looking at about $0.16 of dilution.

And of course, we'll see that again a little bit higher.

So we'll see it a bit bigger number there by about maybe $0.07 more.

The interest savings that we planned to see are still coming through.

Laura Mountcastle and her team are doing a great job for us.

So we'll see good news there.

And on Enterprises, I would just comment that the operations are running well.

So from an operating standpoint, we still see good, solid consistency in their perform performance for the year.

But on a mark-to-market basis, we've got this large change and that's if you can ignore the first quarter increase and think how that nets out through the year with higher gas prices and a little bit higher interest rates, we've seen the mark-to-market climb up a little bit, but again, we're not planning on that change in terms of meeting our guidance for the year.

Ashar, I hope that helps a little bit.

Okay.

It does help.

So, that, I'm -- I'm just trying to do like the utility rate, the dilution is spread to the utility and the Enterprises business, right.

So -- so the way to look at it is that the dilution in -- from the offering is being offset by lower O&M than what was projected?

Is that a way to look at it?

You know, I think a better way to think about that -- we -- in the first quarter waterfalls slide, we've tried to show you the results at a constant share basis and then show you one bar for dilution.

So in the first quarter, you saw $0.19 dilution.

That's everything.

Same thing when we do our forecast for the year.

We try to put that dilution in this waterfall in one bar so you can see the full effect of that.

We are able to offset a good piece of that with our lower interest costs.

And that's how we address that.

And then you can see the pure performance on the operating side and we continue -- we'll be down a little bit on the utility as planned in the year compared to '04 and then we should be a little bit of good news on the Enterprise side compared to '04.

All those are roughly on plan.

Okay.

And then what I heard, Tom, I guess David mentioned that you're running -- you had mentioned gas dispatch savings benefit of $0.16 in the '05 forecast.

And if I heard, you said you might be able to achieve a 20% higher than what you had planned.

That would have meant an additional $0.03.

Is that correct?

No.

Yes, as of -- as of right now, as we look through the remainder of the year, we're -- we're forecasting we'd be more at $58 million versus the $49 million original target that we gave you in that chart back in March.

But again that can change.

I mean it's early in the year and that's going to depend on the sparks spread for the remainder of the year.

And I apologize how much of -- I might have missed this in the presentation, how much of that was realized in the first quarter?

$0.02.

$0.02.

$0.02.

Okay.

Okay.

Thank you very much.

And our next question comes from the line of Richard Haydon of Omega Advisers.

Please proceed.

Good morning.

I -- I want to go back to the -- this -- this dividend question.

I think in your prepared remarks you indicated that the financing was essentially complete?

Let me --

Is that -- is that correct?

Let me first take that part of the answer and tell you the financing for 2005 is largely complete.

And we don't have any maturities coming due until 2007.

But of course, Richard, we have in a larger plan for trying to get our debt down over the course of time accelerating that as quickly as we can.

I'll leave the dividend question to Dave.

The silence I think says --

I was -- I thought maybe you hadn't finished your question, Richard.

We don't really have anything to report in that regard.

Like I said, we -- we do talk about that virtually every board meeting.

Yes.

I -- I -- it just seems to me that this has been a long, hanging question, and there-- there -- this -- this absence of a timeline in the face of better earnings and better prospects is a bit confusing for someone that's trying to tie together the fundamental valuation of a company.

Right.

Well, I understand -- I understand your concern in that regard.

I just am not in a position without --

It's not so much concern as it is, you know, confusion.

Right.

If it were concern it would be an entirely different tone to my voice, I suspect.

All right.

Well, let me just clarify again.

This company is one that we believe should be paying a dividend.

It's going to have a growth profile and a business portfolio that makes sense for us to us pay a dividend.

Of course we've been focused on improving our cash flow and improving our sustainable earnings.

I think we made a lot of progress in that regard and obviously those are factors in consideration.

But the board hasn't gotten to the point yet where it's prepared to be specific as to how much and when we might pay a dividend.

We do talk about it, as I said, every meeting, and I guarantee you we'll talk about it in a couple weeks in our upcoming May meeting.

I -- I don't want -- I don't want to beat this to death, but it's -- it's so critically important.

What are the hot buttons that the board member are focused on as opposed to those things that outsiders, such as myself, are looking at?

I don't know that the hot buttons are any different than what you might expect.

Again, there's sustainable earnings and cash flow issues.

Our cash flow, as Tom has indicated, is continuing to improve but it still isn't in the kind of positive range we'd like it to be on a consolidated basis.

And obviously that's an issue that we look at along with the earnings.

And we put a focus, also, on investing in the utility on paying down debt.

So, we -- we have to make a choice as to what we do with the cash available to the company and I think we've tried to optimize those choices, but at this point in time, one of those choices has not yet involved restoring a dividend, as you know.

Indeed I do.

Thank you.

Thanks, Richard.

And our next question comes from the line of Paul Ridzon of Key McDonald.

Please proceed.

Good morning, can you hear me?

We can.

Just a little unclear on the $0.09 delta on the mark-to-market for the year.

If gas prices did not retreat, would that be upside to guidance?

I just need a clarification on that?

Well, that -- that's a good question.

If gas prices were to stay high, that would be an upside.

The way we're planning on it, we're not counting on those increases in our guidance, but it's too early for us to predict where prices will go and obviously we have an assumption in our forecast, but we need to get further through the year to see what would happen.

But to your point, specifically, the way we're treating it it could be an upside.

But, that's no change to our guidance.

So the $0.09 is not back filling any weakness elsewhere?

No.

And then, sorry to bring the dividend up, but is it safe to say that with some visibility on -- on the rate case whether it's the final order or not, that will -- that will have to be a large driver in -- in your decision?

Well, I don't want to tie it to anything specific in the rate case.

Obviously the rate case provides more information on -- on earnings and cash flow go forward, but, the -- specific timing is not something I'd tie that to.

Okay, thank you.

And our next question comes from the line of Andy Smith of J.P. Morgan.

Please proceed.

Good morning.

Can you guys hear me?

Yes, we can.

Good morning.

Great.

Couple of questions.

One thing I wanted to get a little more clarity on, is that it sounds like the MCV is -- the new contract's working pretty well for you, I'm trying to get a sense of how much of that benefit is from basically you guys have a long gas position that you're monetizing which is offset by purchase power cost.

On slide 11, you guys show a $0.03 sensitivity to a $0.50 change in gas price and a penny sensitivity on a $5 purchase power cost.

If I assume the heat load at the MCV it looks like those -- those commodity price changes move in line with basically running that through the MCV.

So there's this sort of three to one ratio -- three penny to one penny change that you get.

Is that the right way to think about this sort of 20 -- 20% ahead of plan at the MCV or is there something else going on there?

Not sure if I can answer your question.

I -- I -- I understand what you're getting at.

I'm not sure if I can answer your question specifically though let me try to summarize what goes on there.

Obviously what happens at the MCV is the MCV is dispatched differently based on the price of natural gas.

Higher natural gas prices absent of change in power prices would theoretically reduce the dispatch of the MCV somewhat and increase the total gain.

If power prices come up and gas prices aren't up, then obviously, that spark spread shrinks and -- and you end up with a lower gain associated with this resource conservation plan.

And there's also uncertainty as to how the MCV might get dispatched with the implementation now of the Miso (ph) market that began a month or so ago.

So there's a lot of uncertainties as to how that RCP will play out during the year and for the most part, as you know, power prices and gas prices tend to move a little bit in harmony but not necessarily so.

And -- and there can be differences in the sparks spread that generated as a result of that.

Okay.

That's -- that's helpful.

And then, could you -- any update on -- on Argentina, I guess the local courts booted -- booted that issue out.

Any update up there or is that just sort of stand at that point now?

Well, they've -- they've certainly made a lot of noise about what their intents are if they get an adverse ruling out of the international arbitration proceeding.

We have not seen a ruling yet out of -- out of the international proceeding.

It's -- it's sort of on a schedule that we would expect to see that in the coming weeks, pretty soon.

And then we'll just have to see where it goes from there.

If Argentina were to refuse to honor that -- that proceeding, it would certainly be an unusual and -- and -- and drastic step on their part, but they certainly are taking steps that suggest that that may be their approach.

Okay, great.

And then one last sort of inter -- internationally-related question.

Tom, you had mentioned that you guys were looking this year conceivably at opportunities to repatriate additional cash, things in like that under the jobs tax, you know, the low tax rate.

Any -- any progress on that front?

Well, on the portion that we believe was very doable, which would comes from normal dividends and things like that that we forecast for the year, we look very good.

So we're staying right on guidance.

But I think over time we have talked about there may be opportunities that could involve some financing in some of those businesses to permit us to bring back a little bit more money and maybe get some upside.

It's too soon to put that into our guidance.

It's too soon to really give you any feel for how that will go.

We'll get, I'd say, through the summer before we get a handle on those possibilities.

Okay, so sort of middle of the year maybe think for an update on that?

And we will keep you up to date.

We certainly with these earnings calls as we make a little progress with that, we'll highlight that and -- and let you know how we're doing.

Good.

Great.

Thanks, guys.

And our next question comes from the line of Ryan Watson of CMS Energy.

Please proceed.

I'm actually with Stanfield Capital.

My -- my question revolves around the preferred issues that you have at the holdco and sort of how you view those considering that they are callable right now and I guess in -- in the overall scheme of things, as you guys have lowered your cost of funding, they -- they sort of seem like outliers in terms of cost of debt.

We just will keep our eye on those just like we do all of our financing for the company.

I really don't want to comment on any specific action that we'd be taking.

Except to say that we're constantly looking at our debt and our preferred's and trying to determine what the right thing is economically for where we go.

For example, I'll take you back into the debt arena.

We have some very expensive maturities out there including those coming due in 2007.

If we could use some of our cash to pay those early and make that economic for share owners, we'd do that.

We can't right now.

We don't see that equation.

But that could change as we get into next year.

So, we'll watch those opportunities on a daily basis.

Okay.

Thank you.

You're welcome.

Once again, if would you like to ask a question, please press star followed by 1 on your touch-tone telephone.

And at this time you have no further questions.

All right.

Well thank you for joining us this morning.

I'll just wrap up by summarizing, again, we did have a -- a good first quarter.

We're pleased with the successful equity offering and that's allowed us to make -- accelerate our progress, really, with regard to our -- our credit profile and -- and also to invest more in the utility that we'd originally planned and we think that makes a lot of sense given the timing of our regulatory cases.

So, in total, on plan for the year despite additional equity, we've been able to offset that and to continue to provide the same guidance that we provided earlier in the year.

It's early.

There's a lot of uncertainty yet in what gas prices are going to do, what sales are going to do through the summer and that sort of thing.

But I think we're -- we're on track and will certainly continue to -- to work hard to achieve those objectives.

And look forward to the regulatory decisions later on this year.

Again, thanks for your time and attention this morning.

That would be -- that would be all we have for you today.

Thank you.

This concludes today's conference.

We thank everyone for your participation.

Have a great day.