CMS能源 (CMS) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the CMS Energy 2007 first quarter results and outlook conference call.

Just a reminder, this conference is being recorded.

There will also be a rebroadcast of this conference call beginning at 12:00 noon eastern time running through May 10.

This presentation is also being webcast.

An audio replay will be available approximately two hours after the webcast and 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 Ms.

Laura Mountcastle, Vice President and Treasurer.

Please go ahead, ma'am.

Thank you.

Good morning and thank you for joining us for our first quarter earnings presentation.

With me today are Dave Joos, President and CEO, and Tom Webb, Executive Vice President and CFO.

Our earnings press release issued earlier today and the presentation used in this webcast are available on our website at www.cmsenergy.com.

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 the Company's results of operations and financial performance.

A reconciliation of each of these measures to the most directly comparable GAAP measure is also posted in the investor section of our website.

We anticipate 2007 and possibly 2008 reported earnings will be substantially lower than adjusted earnings due to the expected effect of asset sales.

We are not providing reported earnings guidance reconciliation because of the uncertainties associated with those factors.

Now I'll turn the call over to Dave.

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

Thanks for joining us today for our first quarter earnings call.

As is our usual practice, I will 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 financial results and outlook and then we will close with questions and answers.

Before I start I wanted to mention that we closed on the sale of our Middle East, Africa and India investments last night, another major step forward in our business plan.

We issued a separate press release on that development.

I won't go into details on it because I know you're familiar with it, but I do want to acknowledge Tom Elward, who heads our Enterprises business, and Tom Webb, who spearheaded this transaction.

They, with a lot of help from our team, were key in getting this done.

Now to our agenda.

Our operating results for the first quarter of 2007 were solid.

Our non-GAAP adjusted earnings, including the effects of mark-to-market, were $0.43 a share, up from a loss of $0.15 last year.

Our full-year guidance for adjusted earnings remains unchanged at $0.80 for 2007 and $1.20 for 2008.

I do want to remind you that now that we have sold our interest in the Midland co-generation venture, our mark-to-market exposure is much less than it's been in recent years, and as a result, we don't intend to continue providing adjusted earnings without the effect of mark-to-market.

Last year's $0.15 loss included a $0.34 loss due to mark-and-market and also $0.03 in earnings from businesses that are now considered discontinued operations.

You may that recall last year we reported adjusted earnings of $0.22 a share in the first quarter, excluding the effects of mark-to-market.

We have had a busy start of the year in the regulatory front and I'll review the important MPSC matters, make few comments on our business strategy and then turn it over to Tom for more detail on the first quarter and our outlook for the next few years.

The Michigan Public Service Commission approved the Palisades power purchase agreement in March, paving the way to close the sale of Palisades -- excuse me -- to Entergy for $380 million.

The bulk of the net sale proceeds will be used to reduce debt or defer borrowing at the facility.

$66 million of the proceeds, along with released decommissioning trust funds of $189 million or total of $255 million, will be refunded to customers over 18 months.

The Commission has yet to decide how approximately $127 million of additional funds, mostly from excess decommissioning, will be used for the benefit of our customers.

We're pleased with the outcome of this transaction and the improvement in the Company's risk profile that comes with it.

We filed a gas rate case on February 9th requesting an $88 million base rate increase.

A schedule's been set that allows for proposal a for decision in late October.

We also filed an electric rate case on March 30th requesting $157 million revenue increase based on a 2008 test year.

The case reflects the removal of Palisades from base rates, the inclusion of the Palisades purchased power agreement, and an improved capital structure.

The prehearing conference is set for May 10th, more on this on the next slide.

On May 1st, , this past Tuesday, Consumers Energy filed with the Michigan Public Service Commission a long-term resource plan that we call the balanced energy initiative.

It's aligned with the MPSC Chairman's 21st Century Energy Plan proposing a mix of energy efficiency, renewable generation and new conventional generation to meet the future needs of our electric customers.

I have a couple of slides with more detail on the balanced energy initiative in a second.

First, however, a little more detail on our electric rate case.

Increased sales and return of customers from retail open access more than offset increased operating and maintenance cost.

The capital investment to comply with clean air and invest in our infrastructure resulted in an increase in rate base to $5.1 billion.

The contribution of $400 million of equity, which we plan to make today on the heels of the closing of our Middle East, Africa and India transaction, brings our capital structure to our target level of roughly 50% on a financial basis or 41.5% on a regulatory basis.

These capital changes represent the lion share of the rate increase, about $117 million.

The other major effect is the removal of Palisades costs from base rates, which is offset by inclusion of the Palisades purchased power agreement in our purchased power cost.

If approved as requested, customer rates would increase by an average of about 5%; however, taking into consideration the $255 million refund from the Palisades sale, our average rates will actually be slightly lower in 2008.

Incidentally, despite significant rate-based growth since 1996, driven in large part by new environmental requirements, our electric rates since that time have grown at less than the rate of inflation, about 2.2% compounded.

Tom will show you our utility investment plan in a minute.

I'll just preface it by saying that we believe that we can continue to grow the utility rate base while keeping future rate increases close to the rate of inflation.

As I mentioned, on Tuesday we filed our balanced energy initiative with the MPSC.

This plan is responsive to the 21st Century Energy Plan and assumes that Michigan will implement a statewide energy efficiency program and a renewable energy portfolio standard of 10% by 2015.

Our long-term forecast assumes a conservative 1% annual demand growth rate, which leads to a supplies shortfall of 1,400 megawatts by 2015, possibly as high as 2,200 megawatts taking into account potential retirements of our oldest coal units.

Near term we believe the shortfall can only be met with a combination of power purchases and new gas generation.

Over the long term, we recommend a new 750 megawatt clean coal plant, a portion of which might be dedicated to Michigan municipals or others.

We asked for Commission endorsement of the plan and anticipate they'll set it for hearing.

Implementation of our plan will require legislative repeal or significant reform of Michigan's customer choice law.

The Michigan legislature is currently conducting hearings on that topic, but it is too early to predict the outcome.

On a related note, on May 1st we made a filing and requested that the MPSC reconsider recovery of the cost of the MCV purchased power agreement.

If the Commission does not approve full recovery we intend to exercise the regulatory out provision of the contract, which could result in a reduction in capacity or termination of the purchased power agreement and a reduction in our reserve margin.

The MCV PPA represents 13% of our 2007 supply resource.

This slide illustrates our forecast of the capacity shortfall over the long term.

Today Consumers meets its approximately 9,600 megawatt demand with a combination of existing generation and long-term purchases totaling about 8,100 megawatts and shown by the light and dark blue bands at the bottom of this slide, the dark band being the MCV purchased power agreement.

The crosshatched blue to the left of the slide represents short-term purchases.

The very top half of this graph represents the load growth we would expect absent the additional energy efficiency and demand management measures.

Our plan assumes only 1% peak growth demand, about half of our experience over the past decade.

We've assumed that energy efficiency and demand management, along with new renewables development, can grow from about 300 megawatts today to about 1,000 megawatts by 2015.

These are shown by the green and yellow areas on the graph.

If anything, this assumption may be aggressive.

The gap between our resource projection and the net demand is shown by the magenta crosshatched area in the center.

It grows to roughly 1,400 megawatts by 2015, 2,200 megawatts if we assume retirements of our oldest coal units that could become economically obsolete in the face of increasingly -- increasing environmental requirements.

It's clear that new generation is needed and that represents an investment opportunity for us.

We plan a supplemental filing in a few months with more detail on design and siting of proposed new generation.

Now a few comments on our business strategy before I turn it over to Tom.

Over the past several years we've taken aggressive steps to improve cash flow, repair the balance sheet, reduce business risk and at the same time position the Company to grow earnings per share in the mid single-digit range.

Near term we'll concentrate on completing the announced asset sales, investing in the utility and successfully moving our rate cases and paying down parent company debt.

Longer term our strategy will focus on continuing to invest in the utility to fund its growth opportunities and further reducing parent debt.

Together this should provide a solid foundation to grow earnings while controlling costs and customer rates.

Just a brief note on our CMS Enterprises, our non-utility business.

We're nearing completion of our exit from international investments and we're in the process of evaluating our domestic strategy.

We'll discuss that more in future calls; however, I do want to mention that we have decided to withdraw from investment in the Prairie State project in Southern Illinois.

We still expect the project to move ahead and we'll work with our partners to achieve a smooth transition, but frankly we were unsuccessful in securing the long-term power contracts we set as precedent to our investment.

Without these contracts we couldn't be assured that our return expectations would be met without higher-than-planned merchant risks.

We said we'd be disciplined in our new investments and that's what we have done by withdrawing.

Now I'll turn the call over to

Thanks, Dave and thanks everyone out there for joining our call today.

Let's get more into the numbers if we can now.

For the first quarter of 2007 we reported a loss of $0.97 a share compared to a net loss of $0.12 a share last year.

Excluding the loss related to assets sold of $1.37 -- and that's largely in recognition of the currency translation adjustment from our Argentine investments -- adjusted earnings were $0.43.

That's up $0.58 from last year, but remember $0.34 is from the absence of last year's mark-to-market losses, so let's flip to the next slide to look at some of that detail.

It is nice to see this slide with a lot of green boxes.

Before asset sales and mark-to-market losses, 2006 first -quarter adjusted EPS was $0.22.

You can see that in the first bar.

Excluding discontinued operations, adjusted earnings were $0.19.

Keeping the EPS comparisons on that apples-to-apples basis, the mark-to-market loss of $0.34 last year further reduced the 2006 first quarter adjusted EPS to a $0.15 loss.

From this equivalent number, adjusted earnings per share was up $0.21 at the utility and $0.02 at both Enterprises and the parent.

Higher results at the utility included the benefits from the recent gas rate order for $0.10, and colder winter weather for another $0.07.

At Enterprises and the parent, the absence of last year's early debt retirement premium resulted in a benefit of $0.02.

Let's turn to the next slide and discuss the restructuring progress so far.

Dave mentioned a little bit of this in his remarks, but our restructuring work is progressing better than planned.

Last month we closed the sale of certain Enterprise assets in Argentina and Michigan as well as Palisades.

On Monday we closed the sale of our business in Venezuela for $106 million.

Yesterday we closed on our sale of businesses in the Middle East, Africa and India for $900 million.

We expect to close on the sale of our distribution business in Brazil this summer.

Our remaining international businesses, both GasAtacama and Jamaica, are being sold in an auction process over the next few months.

Now we will miss our colleagues who move with these sales.

We'll always maintain a special place in our memories for the talented teams who have led these excellent businesses.

We're putting the sales proceeds to use right away.

Today, as Dave mentioned, we will invest $400 million in Consumers, and by year end, we plan to reduce parent debt by almost another 30%.

These asset sales have allowed us to improve substantially our balance sheet, both at Consumers and the parent.

We've also used tax loss carry forwards to offset gain.

At the end of the year, we expect to retain cash benefits well in excess of $600 million associated with NOLs and the AMT credits.

By the end of next year, we expect to have about $500 million left.

Now over the past four years, our strategy has been to sell nonstrategic businesses, invest equity in the utility, and reduce parent company debt.

As illustrated on this slide, we're close to meeting both goals.

Our objectives have been clear and our delivery persistent.

Before the end of this year, we expect to invest over $1.5 billion in the utility, raising our financial equity ratio at Consumers to 46% and that's the equivalent of 50% when we use the cash we have to pay down debt early in 2008.

Now our target is to reduce our parent debt to about $1.5 billion.

And as described in our balanced energy initiative that Dave just mentioned, we may have a near-term opportunity to invest in a new gas generation plant.

And if this opportunity occurs, it may make sense to delay reaching this target by about a year.

Earnings growth over the last few years has been fueled by cost reduction, tax savings and redeploying investment from Enterprises to our utility, as well as reducing debt and associated interest expense.

Successful asset sales have provided the cash to provide utility equity and reduce debt.

We remained patient with asset sales in order to access good values and the results speak for themselves.

Now for the future, earnings growth will come primarily from capital investment opportunities at the utility.

The opportunities to invest at the utility are in the areas of reliability, conservation, generation, and environmental.

Our existing plan includes maintenance-related investment shown in this slide in light blue; environmental in green; and generation related in dark blue.

Again that is all in our present plan.

These investments will improve capital structure and help fund service improvement.

They result in our rate-base growth of about 3.5% a yea,r from $7.6 billion today to $8.9 billion by 2011.

In our last earnings call we talked about new investment opportunities beyond our plan.

We've updated this list and will refine this in our plan to include some of these opportunities later this year, and we'll talk to you more about that as that occurs.

As of now, we see potential incremental investment opportunities to our plan of about $2.5 billion over the next five years.

Now I'd estimate that we may incorporate about $1 billion of these in our plan.

Several of the more probable opportunities include advanced metering infrastructure, new and upgraded generation capacity, the compliance with clean air and mercury rules, and needed improvements to our distribution system.

If we invest about $1 billion in these opportunities as shown in gold on this chart, the rate base would grow by about 5.5% annually.

As indicated earlier, these new investments will drive earnings growth beyond 2008, and as Dave mentioned just a few minutes ago, we're still on track to earn $0.80 this year and $1.20 next year.

Cash flow continues to improve.

As shown on the right we expect Consumers to generate $376 million of positive cash flow, $173 million better than what we showed you in our last guidance.

As shown on the left, CMS plans to have positive cash flow of $789 million, which is $100 million better than our prior guidance, primarily for higher-than-anticipated proceeds from the sale of CPEE, our distribution business in Brazil.

We expect to generate about $1.4 billion from asset sales at the parent, and use it primarily by investing $400 million in Consumers, paying down almost $700 million of parent debt, paying the shareowners settlement and increasing cash.

In total, CMS Energy's ending cash balance is expected to be $105 million more than its beginning balance and our year-end revolver availability will be about $255 million.

Now important sensitivities around both our earnings and cash flow targets for 2007 and 2008 include the magnitude of cash received from asset sales and the ability to earn on equity invested in the utility.

If we generate an additional $50 million in proceeds from asset sales, 2008 earnings would improve by about $0.01.

If the proceeds are lower by $50 million, earnings would decline by about $0.01.

This sensitivity is beginning to decline as we complete those sales.

If the proceeds were used to invest in the utility, the benefit would be a little bit bigger, $0.02.

Also, a 50 basis-point change in the utility return will impact earnings $0.06.

And it is important that we complete gas and electric rate cases on a timely basis.

Our 2008 guidance assumes the rate orders are effective January 1, 2008.

Now if we had a three-month delay in the electric rate case, that could reduce our earnings by about $0.10.

Our report card remains on target.

We continue to forecast adjusted earnings at $0.80 a share for 2007 and $1.20 for 2008.

We 'e likely to exceed our cash flow target, leaving us with capital structure metrics that will be better than the targets shown here.

So thank you, everybody, for listening and operator, we'd now like to take questions.

Thank you very much, Mr.

Webb.

(OPERATOR INSTRUCTIONS) Our first question will come from the line of John Kiani of Deutsche Bank.

Please proceed.

Good morning.

Morning, John.

Hey, John.

Notwithstanding all that you've done and accomplished in monetizing the international Enterprises assets, would you consider selling the few remaining U.S.

IPP assets that now appear noncore?

I think you touched on that a little bit.

And I'm referring to the tire burning plant that you have, the gas assets, the coal plant, thinks like that.

John, I touch on it only to say that we're really in the middle of reviewing that.

We have to sit down with our board and make a recommendation as to where we go with the North American strategy.

And frankly, we've just been so focused on resolving these international issues we haven't gotten to a conclusion yet.

but we expect we'll do that this summer and we'll let you know when we do.

With regard to the Dearborn Industrial Generation DIG is there the potential to restructure the contract or do something with the merchant capacity perhaps?

Well, I suppose there's always that potential and that's part of the issues that we're looking at in North America and again, we'll let you know if we make in progress in deciding what to do with those assets in general and particularly with the dig project on a long-term basis.

Okay, great.

And as far as the utility is concerned, it sounds like your demand growth assumptions are pretty conservative.

Can you give us a little bit of additional color on that $500 million uplift in rate-based growth opportunities and perhaps maybe talk about the new gas-fired plant a little bit more?

I mean, is it possible for that investment to be a little bit accelerated?

Could you perhaps buy a gas plant instead of building one, things like that?

It seems like you're going to need it sooner rather than later.

Let me kind of summarize what Tom said.

We've gone through and looked at opportunities to invest in the utility and come up with a fairly large number, $2.5 billion or so over this five-year period.

We don't think it's realistic that all of those projects would necessarily make sense, but we do think that incremental investment over and above what we had in our prior plans -- it's something like $1 billion over that time frame -- might make sense and in a whole combination of things that Tom talked about.

In our balanced energy initiative, we went through and as I -- as you acknowledged, I guess, we think we built in a relatively modest load growth.

Now it's clear that Michigan's economy is struggling of late.

We're hopeful that'll improve obviously, but we've seen load growth in excess of that 1% over the past decade and certainly that's lower than what most of the other states are forecasting, so we think it's modest.

We also believe that the energy efficiency and renewable goals, while we are prepared to endorse them, are pretty aggressive between now and 2015.

So if anything, my guess is we may need more generation that's identified there.

We think it makes a lot of sense to add new base load coal and we'd like to do that reasonably quickly, but realistically between now and.

say, 2011, that's just not going to happen.

And we think it makes a lot more sense for us to either build or possibly procure some existing combined cycle and/or peaking gas capacity and we're looking into all those options as we speak and we'll let you know if we are successful.

Thanks, Dave.

Thanks, Tom, that's helpful.

John, I just add one thing in there.

And, John, I just add one thing in there.

When you're looking at that utility growth slide where it shows those opportunities, that mix is a little different than what we had talked about before, as we've begun to refine those opportunities.

And what we have built in there that's different is either procuring or building this gas plant that Dave's talking about.

Great, thanks, Tom.

Our next question will come from the line of Brian Russo of Ladenburg Thalmann.

Please proceed.

Good morning.

Morning.

Could you just elaborate a little bit on the legislative process to appeal the electric choice law?

And then also, I think in previous presentations, you had discussed the positive impact on earnings to the return of open-access customers and I was wondering how that might tie into the repeal of that electric choice law?

Well let me just comment on that.

Last yea, we saw a significant return of -- of open-access customers.

We were at one point at peak about 10% of our peak load was being served by others under the open-access program, and that's shrunken dramatically, something like 3% or so today.

So it's a lot smaller than it's been and clearly, that means a lot fewer customers taking advantage of choice and a lot less attractiveness of choice and, therefore, we think the time is right to revisit this, particularly because the uncertainty associated with that choice program has been a real impediment to investment in new generation and there's a growing consensus that that new generation is required, so certainly those two things fit together.

We've made it very clear in testimony before the legislature in Michigan and also in our filing that repeal is by far the -- repeal of the choice provisions.

at least.

is by far the preferred mechanism to establish that.

It may be that significant reforms could be done, although we think that is more difficult and more complicated.

And -- and that issue is one of the several issues that are very high priority in the state of Michigan right now.

In fact, the speaker of the house earlier this year indicated that next to the budget issues that they're trying to resolve in Michigan, this issue of new generation in the state is among his highest priorities.

Subcommittee -- or the committees in the legislature are currently looking at this issuer.

They've taken a lot of testimony around how that choice law has worked and what we ought to do about it, and I think their intent it so get some legislation drafted and perhaps moved within the next few months.

We'll see how that progresses.

The Senate has also been looking into it.

Of course, both Houses -- both sides of the legislature will have to pass something.

I would say the Senate isn't as far along as the House is in their deliberations.

But we do expect to see some more specific legislation being discussed within the state in the next month or so.

All right.

And my next question is, in terms of the 2008 sensitivities, if I heard you correctly it looks like your cash flow estimates are exceeding original expectations, and I'm just wondering what's the dollar value of asset sales proceeds assumed in the sensitivities here, and then,, how confident are you that you can get that electric rate case or new electric rates effective on January 1, '08.

Well, I'll do the asset sales first and then turn to Dave on the timing on the electric rate case.

You know, we pretty much have most of the asset sales behind us for this year.

We've signed CPEE and need to close on that, and we still have some work we 'e doing around Atacama, as well as Jamaica, but we're pretty comfortable on where we are on our forecast, so $1.4 billion is a pretty good number.

And candidly, we're showing you a sensitivity of up or down $50 million because it's gotten to that level now.

If anything, there's probably that little bit of upside that is left rather than downside.

I might comment on the electric rate case.

You know, the schedule has been set for the gas rate case and with the proposal for decision in October, I think it is quite possible that the Commission will act on that before the end of the year.

I can't speak for them, obviously.

The electric rate case will be a little bit more challenging because we didn't file that until the end of March, so that's three months into the year.

Michigan guidance says that the Commission's supposed to process rate cases in about nine months, but that's not always possible, and again, I can't speak for them.

I think this is a bit of an unusual circumstance, given the large new investment of equity in the utility and certainly the transition on Palisades from base rates into the purchased power agreement, so we'll be encouraging and hopefully the Commission will be responsive to trying to act reasonably quickly on this.

But we certainly can't make promises that they'll get it done by January 1.

Okay.

And just to be clear -- I'm sorry if I misunderstood but the GasAtacama and Jamaica assets to be auctioned this summer, that would be considered in excess of the $1.4 billion assumed in the sensitivities?

We have a number built into our cash flow.

It's not shown in the $1.4 billion, because that's the number of all the known sales, but we have down in our other line in cash flow a small number, which we prefer not to identify, associated with those new sales.

Okay, thank you very much.

Our next question comes from the line of Steve Fleishman of Catapult.

Please proceed.

Yes, hi, thank you.

Hi, Steve.

Morning.

You did mention that the gas plant is now included in your rate base numbers.

But --

In the opportunities.

In the opportunities, excuse me, yes.

To the degree that you do this $1 billion of potential additions, do you believe that with the tax credits that you have, that you'd be able to do that without having to issue new equity?

Well, let me just take that question and just tell you that the one thing we want to do is protect the shareowners from new equity.

It's sort of one of the last options we'd look at.

We feel pretty good about our financing plans that we have in place.

And recall that I mentioned just a few minutes ago that it might cause us to push back our $1.5 billion debt target for the parent by maybe a year if we are able to do some of those things very near term, but we feel pretty comfortable about our capital structures and what we can do so we can meet all of our goals.

Okay.

Thank you.

Our next question will come from the line of Robert Petrosino of Barclay's Capital.

Please proceed.

Good morning.

On the MCV, the REG out.

is that -- I'm just trying to recall -- is that the end of '07 or '08?

September of '07.

September of '07.

Now, is the -- you're seeking recovery of the MCV contract.

Is that within the current rate case or is that a separate filing?

Last year when we were successful in selling the MCV, part of the regulatory approval, the Commission required that we make a filing by May 1st of this year, basically acknowledging this issue of the potential regulatory out and how it may affect our reserve margins and things of that nature.

We have done that and it was included as an update to our power supply cost recovery case for 2007.

And the outcome of this separate filing, is that going to be kind of in part consideration of what you do in regard to a potential new gas plant?

And is that going to be done at -- at CMS Enterprises or is that going to be done at the utility?

Well, MCV is no longer owned by the utility or CMS Enterprises.

We don't have any investment in that anymore, we simply have the contractual relationship.

When I talked about the 1,400 megawatt need by 2015, that didn't include 800 megawatts of potential retirements.

I want to emphasize we haven't made any plans to retire older coal units, but as we look at these changing environmental requirements that might, require that we do that.

It also doesn't include the potential loss of some or all of the MCV capacity as this whole process unfolds, which will be another 1,200 megawatts.

So that -- what happens to the MCV is not a driving force as to whether or not we need this gas capacity.

We might need more capacity if -- if we don't have all the MCV available to us in the future.

Yes, I understand that MCV is no longer a part of consumers, but -- okay you answered at the end.

But, if PUC does not allow recovery of MCV you exercise a REG out, you're obviously short more capacity than anticipated and now you say that is not really is consideration in -- or a major consideration in the potential purchase of build of a new gas plant.

Is that right?

Yes, just to be clear the new gas plant is required even if we have all the capacity of MCV available, number one.

Number two, we have asked the Commission to reconsider the recovery of the MCV, and if full recovery was granted, we expect that we would have the MCV available to us.

If full recovery weren't granted, the MCV may have certain options to reduce the amount of capacity that we take or even the possibility of terminating the contract.

That'll be a matter of discussion.

We don't know if that'll happen yet, but if that does happen, we would need more capacity than what we've identified here, and in any event, we still need this new gas plant.

Now do you think the PSC is going to look at the cost of the MCV contract in comparison to the potential of a new gas plant?

Well, I don't know -- I can't speak for the MCV.

I think -- I'm sorry, for the Commission in that regard.

The MCV is what it is, and its economics from a customer perspective are probably favorable to -- to a gas plant or at least in the same ballpark, simply because it is a coal proxy type of a contract.

The -- the Commission in looking at this is -- there's certainly a lot of history with the MCV, but in looking at this I think they'd have to make a judgment as to whether it's in the best interest of the customers to adjust that recovery or not.

That's about all I can say at this point in time.

Lastly, do you expect any legal challenges on the REG out provision?

We've made it clear that that could happen.

We're comfortable with our position in that case, but that doesn't mean that the MCV folks will necessarily agree with all of our rights, and so that could -- that could clearly happen.

We'll see.

Great, thank you.

(OPERATOR INSTRUCTIONS) Our next question will come from the line of John Alli of Zimmer Lucas.

Please proceed.

Good morning.

Excellent quarter.

Hi, John.

Hi.

Quick quarter.

Slide number 12 talks about your NOL position.

Yes.

With the $600 million that you guys show in '08, is that net of both the income effects as well as the asset sales that you expect?

That is net of everything, so we expect that after we complete our asset sales and the income that we'll generate in '07 and '08, we'd have $600 million gross NOLs available at the end of the year 2008.

Excellent.

Thank you very much.

And remember, when you look down the line you can see the net numbers, so you can just add them with the credits.

Okay, thank you.

Thank you.

(OPERATOR INSTRUCTIONS)

Well, it sounds like we don't have any more.

Let me jump in and say, again, thank you for joining us today.

We did have a good operational quarter.

It's a little hard to tell that from all the numbers, which reflect all the transition that we're going through, but we think that's a net positive because of the successful implementation of our asset sale program and the reinvestment in the utility.

We've got a lot more work to do.

We made a lot of progress in the first quarter here in completing all that, and we'll certainly be focusing on Lansing, both in terms of our regulatory issues as well as the legislative issues that would set the stage for moving forward with new generation.

So as I said internally, it 's an exciting time for the Company.

There's a lot of opportunities for us at the utility and we feel really good of where we're positioned.

We still have more work to do, but we thank you for your continued support.

This concludes today's conference call.

We thank everyone for their participation.

Have a great day.