CMS能源 (CMS) 2008 Q3 法說會逐字稿

Good morning, everyone and welcome to the CMS Energy 2008 third quarter results and outlook call.

This call is being recorded.

Just a reminder, there will be a rebroadcast of this conference today, beginning at 11:00 a.m.

eastern time, running through November 12.

This presentation is being webcast and is available on CMS Energy's web site in the investor relations section.

At this time, I would like to turn the call over to Ms.

Laura Mountcastle, Vice President and Treasurer.

Please go ahead.

Thank you.

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

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

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

This presentation contains forward-looking statements.

These statements are subject to risks and uncertainties and should be read in conjunction with our form 10-Ks and 10-Qs.

The forward-looking statements and information and risk factors sections discuss important factors that could cause results to differ materially from those anticipated in such statements.

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 included in the appendix and posted in the investor section of our website.

We expect 2008 reported earnings to be about the same as adjusted earnings.

Reported earnings could vary because of the effect of asset sales, unrealized losses on investments or other factors.

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

Now, I will turn the call over to Dave.

Thanks, Laura and good morning, everyone.

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

As is our usual practice, I will start the presentation with a brief update on the business and then I will turn the call over to Tom for a more detailed discussion of the financial results and then the outlook, and then we will close with the Q&A.

It has been a tumultuous time in the financial markets since our last call.

Fortunately, our team was out front of the crisis with this year's planned financings and our liquidity position is strong, and Tom will give you a little more detail on that in a minute.

The economy is shaky nationally and a little shakier here in Michigan.

The autos in particular are struggling.

It is not great for us, but also not as troubling as you might think.

Our margin from the automotive sector is much smaller than it once was, now only about 3%, and we're seeing expansion in other industries that are offsetting the automotive sales decline, like alternative energy manufacturing.

Still, we are seeing a sales decline, and an uptick in uncollectibles.

On a weather-adjusted basis, both electric and gas deliveries are off about 2% for the first nine months of this year compared to last.

While our uncollectibles are still well below the national average, they are trending upward.

We have been able to offset these negatives with a combination of rate relief and spending cuts, so we're pleased to say that our adjusted earnings outlook remains unchanged at $1.20 a share.

One of the adjustments we've made, however, reflects the impact of the sharp market downturn on our pension funds.

We don't see an earnings impact associated with the qualified plan, but there is one this year associated with the non-qualified plan.

We booked a $0.03 per share expense in the third quarter which is reflected in our GAAP results, but not included in our adjusted earnings.

And again, Tom will give you more detail on this.

Given the weak economy, and tighter credit markets, we have reviewed our capital investment plans and deferred some plan spending out of 2009.

Those deferrals remain in our five-year plan, however, which still reflects about $6.4 billion through the end of 2012.

We've also trimmed our near term sales outlook and stress tested our models against further unanticipated sales decline.

In all, we continue to be comfortable with our earnings plan and growth projections averaging about 6% to 8% per year over time.

We're in the process of finalizing our budget for 2009 and plan to share that with you during our year-end earnings call in the first quarter.

Let me turn to some great news that unfortunately, was a bit lost in the October market turmoil.

On October 6, the governor signed a package of bills that define Michigan's new energy policy and implement important changes to utility regulation that enable our growing forward strategy.

I won't go into great detail, because I know many of you follow this closely, but I do want to highlight a few of the more important provisions.

First, regulatory lag has historically been problematic in Michigan and was of concern as we enter a strong capital investment cycle.

I'm very pleased that the new law addresses that issue in a very effective way.

It dictates that rate making uses a forward test year, it allows utilities to self implement proposed rate adjustments subject to refund six months after filing and it requires the PSC to issue a final order within 12 months of a complete filing or the rates become final as filed.

Of course, none of this assures that we will get everything we ask for, but it does put a focus on future needs and speeds the process dramatically.

Best of all, the sitting commissioners have been supportive of the changes.

The new law puts a cap of 10% on the amount of electric load that can be served by a third party.

You might recall that we're about 4% per day -- I'm sorry, 4% today, but have been over 10% in the past.

The cap provides sufficient certainty that we can move ahead with our balanced energy initiative.

The law also requires that we be allowed to collect over no more than five years our Public Act 141related regulatory assets, that's a 2000 law.

This includes the $77 million outstanding balance of stranded and implementation costs previously determined by the commission and provides more certainty.

The law also requires that rates be de-SKUed over five years or less.

In other words, it requires that all customer rates be set in accordance with a prescribed cost of service methodology.

This will improve our business rate competitive and should reduce our load loss under the customer choice program.

Michigan has not historically had an up front process to review and approve plans to develop new power plants.

The result was the potential for second decision making at the time the completed plant was to be added to the rate base.

The new law establishes a process by which the plans can be endorsed by the commission, reducing our risk.

Borrowing costs associated with the approved project may be incorporated in rates during the construction period, improving cash flow and reducing costs.

And very importantly, the bill establishes a standard for renewable energy of 10% by 2015 and sets energy efficiency targets for electric and gas customers.

Both create opportunities for the company for investment and performance incentives.

Overall, we're very pleased with the energy bills and believe they balance the need for regulatory certainty with the interest of our customers.

Our regulatory calendar is fairly light right now except for the gas case we filed back in February.

As a reminder, we filed a request for a $91 million increase with 11% return on equity.

We also requested a revenue decoupling mechanism for residential customers that would eliminate the sales impact of planned energy efficiency and conservation programs.

It is notable there is a specific provision in the new law that enables gas rate decoupling.

The staff recommended a $36 million rate increase with a 10.45% return on equity.

The key differences are shown on this slide.

First of all, we have based our sales assumption on a 15-year average, the staff used 30 years.

Regardless of whether it is due to energy efficiency or weather, we have experienced a decline in sales over the past 15 years and believe that the 30-year average predicts sales that are unrealistically high.

The use of 30 years versus 15 years accounts for $10 million of the variance.

As an aside, this is exactly the kind of historic rate making practice that the new law is intended to fix.

The staff has removed the $9 million we included in our request for energy efficiency.

This has really little impact on the company, other than deferring our energy efficiency program implementation.

We will be making a new and separate energy efficiency program filing under the provisions of the new law.

The staff's recommendation for a lower ROE accounts for another $8 million.

The staff's recommendation regarding working capital is not problematic, it simply reflects the real reduction in working capital requirements due to the retreating gas prices.

Several other smaller differences are noted on the slide.

All things considered, we're not as far apart from the staff's recommendation as it might first appear.

Later this month, we plan to file a new electric rate case, reflecting increased investment and other operating cost increases.

This will be our first case under the provisions of the new law.

That's a quick rundown of the recent developments.

I will be here to answer your questions.

So now let me turn it over to Tom for more detail on the financials.

Thanks, Dave and thank you, everyone for dialing in today.

First for the quarter.

Despite softer sales and rising uncollectible accounts, GAAP EPS at $0.34 was equal to last year.

Adjusted non-GAAP EPS at $0.33 was up sharply from last year and stronger than first call estimates.

This excludes $0.03 associated with an unrealized loss on our non-qualified retirement plan investment that Dave referred to.

Higher earnings reflect rate cases, benefits from the MCB regulatory out, lower interest expense and lower overhead costs.

This more than offset unfavorable weather, sales, cost for launching our new SAP-based systems, higher capital investment and lower investment income.

Now, over the last several years, we've restructured the company and rebuilt our balance sheet, reducing our risk exposure substantially.

More recently, as you can see on this slide, we exited our exposure to monoline insurance companies, added a 364-day revolver for $150 million at the utility and accelerated and increased the size of our planned first mortgage bonds at the utility.

This bolstered our liquidity and further reduced our risk exposure.

As with many companies, we were concerned that sub prime loan problems would lead to rocky financial markets this fall.

We did not expect the crisis and we were fortunate to complete our debt refinancing programs in advance of it.

Events such 9-15 will be challenging, but we're in a much better position to deal with it.

The financial, credit, and economic dislocation will lead to lower sales, higher pension funding, higher uncollectible accounts, pressure on liquidity and a need to reshape our capital spending plans.

Ignoring these changes wouldn't make any sense.

Accordingly, early in October, we lowered our sales outlook and related assumptions for 2009 to reflect the recession and raised our estimate for pension obligations to reflect the sharp downturn in equity markets.

These conditions may not be as severe as we have assumed, but we have put plans in place to offset the cash flow and earnings implications.

We've also prepared a contingency plan, should conditions actually turn worse.

I will take you through each of these earlier comments now.

First, the economy.

The most severe electric sales decline that we've experienced in 60 years occurred during the 1979 to 1982 recession when sales dropped by a total of 7% over a three-year period.

You may recall this was the last time the auto secured federal loans and support.

Back then, the autos and their suppliers represented 15% of our sales and 14% of our margins.

Today, that is down to 5% of our sales and only 3% of our margins.

Despite our reduced exposure to the auto sector, we're planning on our weather adjusted sales to be flat to down a bit for 2009.

Excluding sales growth associated with our largest and fastest-growing customer, HSC, our underlying sales growth would be down 3%.

Now, that's on top of a drop of about 2% this year and more than double the annual decline we experienced in the 1979 to 1982 period.

We've prepared a contingency plan for twice that or about 7% in one year, and that's the equivalent of a full three-year impact of the recession in the early '80s.

Net of rate relief, this 3% decline would reduce earnings by about $20 million.

We've added to that the prospect of a substantially higher pension contribution next September, higher uncollectibles and other challenges.

To offset these risks, we've delayed $180 million of CapEx, and that's $55 million at enterprises and $125 million at consumers.

We also reduced working capital and O&M.

We're reflecting responsible level of sales, capital spending and costs, to ensure that our customers and shareholders are served well.

The new file and implement rate case approach that Dave just described permits us to address responsible requests in a more timely manner.

It is too soon to share projected earnings projections for next year, but we do not expect our long term growth plans at 6% to 8% to change.

Our capital spending projects are still needed.

We're simply reshaping the implementation timing to reflect near-term economic conditions and to enhance our execution.

Now, regarding liquidity, we have about $500 million of cash on hand and about $800 million of bank facilities in place to address short-term needs.

Although at this point we usually don't provide a forecast for next year, we thought you would appreciate this view of our liquidity and our underlying cash flow through 2010.

As you can see, we are well prepared for additional challenges should they occur.

Both our $500 million revolver for the utility and our $550 million revolver for the parent are in place through 2012.

We will need to review our accounts receivable financing program next year.

Importantly, we do not have any parent debt maturing until 2010.

We do, however, have convertibles worth $390 million that could be tendered.

We have the cash on hand if needed, but no tenders have occurred since last July.

This is good low cost financing for us.

We do have plans to enter the capital markets for consumers with first mortgage bonds by the middle of next year.

Now a number of utilities already have issued new bonds since 9-15, although the spreads have been wide.

We believe our liquidity is strong and intend to work hard to keep it just that way.

Let's talk about pension impacts.

First, the qualified pension plans are receiving lots of attention.

We expect to be funded at 75% of liabilities at year-end.

We do not expect an earnings impact.

Higher expenses associated with falling asset values will be offset by higher discount rates.

If lower asset values sustain at year-end, we plan for a cash contribution of about $210 million.

Now, that's $50 million in our base plan plus $160 million to reflect the market downturn.

This could be higher if asset values fall further.

Our required contribution would be about $70 million, and we will decide about the additional funding next fall when the contribution is due.

As covered earlier, we've built the higher contribution into our cash flow plan and we plan to offset it with capital spending delays and other improvements.

Second, our non-qualified pension.

For the third quarter, we reflected in earnings the non-cash mark-to-market impact of the drop in equity value because we judge that drop to be other than temporary.

This unrealized loss was worth $0.03 a share.

We do not plan to revise our funding for this non-qualified plan, so we do not expect a cash flow impact this year or next year.

Now, back to 2008 guidance.

We faced a lot of profit issues so far this year, including lower sales, higher uncollectibles, storm costs and SAP launch costs in excess of plan.

We have offset all of this with a variety of actions to maintain our adjusted earnings guidance at $1.20.

This does not, however, reflect the other than temporary unrealized loss of $0.03 in our non-qualified retirement plan values resulting from the stock market decline.

Although we only have a couple of months to go, earnings and cash flow could be different for guidance, up or down, depending on whether an economic impacts on sales.

Uncollectibles are forecast for the full year at $38 million, or about 0.5% of sales.

This is still below many of our peers, but it has been climbing.

We are enhancing our capability to monitor and address these uncollectibles.

If they climb another 10%, that would impact earnings unfavorably by about $0.01 a share.

Also, as we put strong new cash conservation actions in place, we may improve our cash flow a bit yet this year.

Now, here is our report card that we show you, each report, and this shows you where we are so far this year.

Now Dave and I would be happy to take your questions.

Thank you very much, Mr.

Webb.

The question-and-answer session will be conducted electronically.

(OPERATOR INSTRUCTIONS) We will pause for just one second.

Our first question comes from the line of John Kiani with Deutsche Bank.

Please proceed.

Good morning, Dave, Tom, Laura.

Good morning, John.

A couple of questions.

Dave, I know you briefly touched on the energy legislation in your comments and you also made some comments about sales volumes, but can you articulate a little bit more on how file and implement affects your ability to readjust rates or file to readjust rates based on potential further degradation of sales volumes and how that could protect the margins that the company realizes?

Sure.

Well, on both the electric and gas side, the law allows us to make a filing and then self implement up to the amount of that filing, six months after we make the filing.

Now it does have to be within the test year associated with the filing.

Of course, we have a gas case in process right now, and that case is far enough along where that feature of the law is not likely to apply, although it could, because frankly, any pending case also falls under that six-month limit.

We are going to be filing an electric rate case shortly, so assuming the commission deems the filing to be complete, and there is a 30-day period for the commission to determine whether it is complete or not, that six-month period would start when we file the case.

So it does allow us to self implement rates early in the -- or some time in the second quarter of next year, assuming when we make the filing, the commission deems it to be complete.

That's helpful.

Thank you.

And then on another subject, can you remind us, Tom, what the most recent NOL balance is at the parent company?

Ballpark?

Happy to.

We will just dig them out right now.

Keep in mind, as I give you those, we have AMT credits that are worth about a $0.25 billion dollars.

In our NOLs, in our most recent status, we will give it here in just a second.

John, I think those, after taxes, are going to also be about a $0.5 billion dollars.

So, add those back into the AMT credits, and in just a minute, we will give you the exact number.

Great.

Do you have another question?

I do, actually.

And so, I guess in conjunction with this NOL figure, and I think earlier in your comments, you reiterated and said you're still comfortable with your 6% to 8% long-term earnings growth rate, can we confirm that you don't need equity capital to fund that growth rate outside of obviously the special situation with the potential to build a new coal plant in Michigan, outside of that project, I guess in combination with this NOL and reasonable debt financing, is it safe to continue to assume that you achieve that growth rate without the need for external equity capital funding?

Yes, that has been our plan all along.

It didn't make sense for us to invest in a multi billion dollar coal plant without shoring up our balance sheet with an equity issuance.

But our plan all along has been that that would be the only situation in which we feel we're going to need new equity.

Right.

So looking at the rate base growth outside of that, you're covered with the NOL?

Right.

And so it looks like we're in about $250 million for the AMT and you said $500 million after-tax for the NOL, Tom?

Yes.

And we will give you that exact number in just a minute.

Okay.

Great.

Thank you.

Don't worry, we will sneak it in for you, John.

Great, thanks.

Your next question comes from the line of Paul Rizdon with Keybanc.

Please proceed.

Just regarding the SAP implementation costs, are these recurring costs, or was this kind of just limited to this quarter to get the system up and running?

This is really just the expense after we launched and therefore, we we stopped capitalizing the work.

So as we were bringing things up to run, not everything runs as perfectly as you would like to and all of the changes and the improvements that we made, we needed to expense.

Those are just a little bit bigger than what we had planned for, and I don't think anything extraordinary from what you see in a good SAP launch, because so far, we're very proud of what we've done.

I mean Paul, to be clear, long term, of course, we expect SAP to reduce our costs, but in the near term, some of these implementation charges that we're no longer able to capitalize affected our earnings.

Could we see some fourth quarter trickle-through of the higher costs?

It is too early to tell, I think, but they certainly aren't an ongoing cost, but I couldn't say that they are not going to show up a little bit in the fourth quarter as well.

Tom, what are you envisioning as the delta in the discount rate to alleviate any earnings impact?

In terms of where we were last year, you can see that our discount rate was 6.4%.

And conservatively speaking, we expect the year to end up at around 7%, and that's what's in the numbers that I'm factoring in.

But as you know, we look not only at the asset value, but on what is really happening in the market on the discount rates at the end of the year.

I think we've been a little conservative, discount rates really are running a little bit higher than that for the portfolio mix that we have.

It is great to hear you reiterate the growth rate.

Should we expect maybe it is not as straight as we may have thought it was earlier, but more kind of got some curvature to it?

Well, we never tried to imply that it would be a straight line all the way out.

Obviously, it gets a little bit lumpy on occasion, depending on when your rate cases occur and when your investments take place.

We're still comfortable with that range.

As we said, we moved some capital spending out of 2009, simply to be conservative on liquidity.

But we're still comfortable with that long-term range, in fact, over the five-year period.

And your electric rates that are you planning on filing will ask for decoupling?

I don't think we had decoupling in our electric rate case.

The law actually specifically provides for gas decoupling.

That doesn't preclude electric decoupling, but right now, we don't have plans to file that in the current electric rate case.

And what are the -- what uncollectible protections are built into your current regulatory construct?

Well, on the uncollectibles side, we already have built in $25 million, so what we will need to do is look at where we're running today, and we're running at $38 million.

We will pick up the electric part of that in this rate case, and then the gas part of that in the next gas rate case.

And then lastly, there has been some talk about steering some federal funds towards the auto industry.

What are you hearing on that front?

We're not hearing anything more than you are.

A lot of discussion about that, as you know.

Michigan delegation has certainly been pushing hard for that, but it is not clear what is going to actually happen.

Thank you very much.

And congratulations on a strong quarter.

Thank you.

And for John and everyone else, the specific AMT credit number was $276 million, and the net number from NOL, the tax impact side of that, is $350 million.

So you can see there is well over $600 million of tax benefits available to us.

And thanks for the question, John.

Sorry to be slow with the answer.

Your next question comes from the line of Jonathan Arnold with Merrill Lynch.

Please proceed.

Good morning.

Good morning, Jonathan.

One detail question, on page 3 of the earnings release, we noticed a number of dividends and other distributions to the parent of $1.3 billion, and we suspect it may be -- the one dash shouldn't be there?

I just wanted to clarify that.

No, those are all just the normal payments up in dividends that were paid, including tax sharing benefits which were pretty substantial and remember, this was all during the course of last year.

Okay.

You have $250 million at the end of December, and then $1.3 billion as of now.

Yes.

So don't think of that as just the utility, which is what you may have in mind.

Remember all of the assets we sold, which make up the bulk of that.

Okay.

Dividend from enterprises.

Okay.

So that includes things that came out of -- money that came out of enterprises.

Absolutely.

Okay.

I understand.

Then you mentioned, I think, a number of 75% as where you projected to be in terms of funding on the pension.

Is that on the PBO basis or the ABO basis?

It follows the new pension act calculations.

So you need to be careful, it is not pure as to one or the other, and what you can see on the chart on page 11, we're trying to get to the 75% level, because that is the threshold that you need to reach within those calculations so that you don't have either an at-risk program or any benefit considerations.

As to the discount rate you're using there, is that the sort of smoothed discount rate that is used for funding, or is it more the higher discount rate that you can use on the expense side?

It is smooth, but remember, not as much anymore, as you may have remembered in the past under the new pension act.

And it is -- the best thing to think of it, it is as close to the ABO as you can be without being the ABO.

Okay.

And then just one follow-up on -- you talked about having your plan to address the cash flow implications of sales.

Should we think about this kind of new lower sales forecast as being also addressing the earnings implications of the kind of forecast you are talking about, and then if we get to this contingency level of even lower sales, you also mentioned that is what would throw you off maybe in the short term, your earnings targets?

Well, it certainly creates more challenge for us.

Recall though, as I said earlier, we will be filing an electric rate case reflecting lower sales and should be able to self-implement those in the second quarter per plan, and we may have to make some other spending adjustments, and we're reviewing our budgets to reflect the impacts earlier in the year.

Even though on slide 9 have shown you under the sales trend information the cash flow implications because I know that is very important to everybody.

There is a set of earnings implications that go right down the page with that, too, and we're focused on trying to address both of those in a balanced way.

Okay.

And finally, when do you anticipate giving your 2009 earnings outlook?

We have had practice of giving that in our year-end call, typically around the first of February.

I'm sorry -- the end of February.

And that will be the plan into '09?

Yes.

Okay.

Thank you very much.

Thank you.

Your next question comes from the line of Mark Segal with Canaccord Adams.

Please --

Good morning.

In the past, you guys have spoken about plans to pursue advanced metering in your service territory.

Just wondering if you could provide an update on where things stand and what you think the timing of your plans might be going forward.

Thanks.

Yes, we're still very interested in that.

We think it is a great project and it is part of what enables the energy efficiency targets in the new legislation to be met.

We've been working closely with the commission staff and getting aligned with them on the requirements.

Frankly, right now, we're on the front end of that project, working on software, building our plans for pilots and we will be running pilots in 2009, 2010.

The real deployment of the metering would then happen 2011 and beyond.

Right now, we expect that is going to be about a three to four-year period to deploy those meters, but all of that is pretty much on track.

Okay.

Thanks so much.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of [Robert Gephardt] with Neuberger Investment Management.

Please proceed.

Good morning, everyone.

Good morning.

Just in regards to your comment that you're planning to come to market to term out your mortgage bonds in kind of the middle of 2009, is there an interest rate that -- which you would use your available liquidity just to take down our balance sheet and determine that later when kind of the markets improve?

The best way to answer that is we're going to watch the markets very carefully.

Again, remember, we were fortunate to be out in front and accelerated $350 million of our consumer's first mortgage bonds before September 15, when things fell apart.

And also, a revolver.

So we will watch what happens.

We don't have to do anything now.

We will probably get into the first quarter or so and read the market.

We will finance ourselves appropriately, but it is hard to believe for consumers we're not going to be able to get something that is reasonable and we wouldn't want to dip into our revolver.

On the other hand, let's take it to another side, is that for the parent, we don't have anything that is due until deep into 2010, but we have told you that we have adequate revolver capacity there and if for some reason that market stayed difficult for that long, we could back that up.

So when we say that, that should provide you with some comfort on what we can do, but our desire will be to get into the proper financing markets.

Okay.

Great.

Thanks, guys.

Your next question comes from the line of Brian Russo with Ladenburg Thalmann.

Please proceed.

Good morning.

Good morning.

Most of my questions have about asked and answered.

But I'm just curious, on that $77 million of the PA 141 balance that remains, how is that to be collected?

It is not dictated in the law exactly how it is to be done.

But maybe to put a little history to it, the 2000 law provided for stranded cost recovery.

There are a number of stranded cost cases, and the majority of that $77 million is stranded costs.

When the commission -- the prior commission established a surcharge to allow us to collect that, they established at a low enough level that the balance has actually gone up and not down.

So we were concerned to make sure that under this new law we could actually collect that cash.

The law said it has to be done over no more than five years, it's not much more clear than that.

So we'll be making a filing with the commission in working out a process to collect that cash, but it does provide certainty that we'll get that cash.

And it's positive to cash flow.

Yes.

RIght.

And just on the dividend policy, does the delaying of the $180 million of CapEx, does it at all change your dividend pay out strategy?

You're talking about common dividends out of CMS?

Yes.

I don't see that it would have an impact on that, of course.

We haven't been real clear on what our strategy is in that regard, but what we've said before and I think still holds true, is we would intend to move the dividend up, but at a slower pace than we have in the past and as long as we're in a strong capital investment cycle, we certainly wouldn't expect to get as high as the industry norm for a while.

Okay.

Thank you.

The next question comes from the line of Clark Orsky with State Street Global.

Please proceed.

Hi, thanks.

Tom, could you just circle back on the $160 million incremental plan related to pension and just reiterate what exactly that figure represents?

Yes.

The total contribution that we would expect to make in September of next year would be $210 million.

We had $50 million already baked into our plan, so it was in our cash flows that we've talked to you about.

But we had to add $160 million to address the drop in asset values and make sure we could be at our 75% funding target.

So if the market drops further and our assets drop further, we will need to increase that contribution and of course, if it goes the other way, it would be smaller.

Okay.

So that takes you to the 70%, or 75%?

75%.

Okay.

Thanks.

And what have you projected or what balance of assets were you using?

We are using the balance as of September 30, so at this point, if you looked at October 31, of course, it would be worse than that.

Okay.

Okay.

Thank you.

You bet.

Your next question comes from the line of Edward Heyn with Catapult Capital Management.

Please proceed.

Good morning.

Good morning.

Just had a quick question on one of the slides that didn't show up in the presentation this time, was the rainbow rate base slide.

And I know that the punch line of that slide is that you think that the 6% to 8% EPS growth rate is okay, and you obviously reaffirmed that this morning, but just -- is there any color on why you guys chose not to give that?

Is that potentially going to be changing a little bit as you work through some of these economic impacts?

Well, we will probably present that at the EEI conference coming up here next week.

There really wasn't any reason that we took that out other than to shorten the presentation.

It hasn't changed substantially at all.

As I indicated, we have slipped some capital out of 2009, but we have incorporated it later in the five-year period, so we will update it for you at the EEI conference if you're going to be there, but it is not a material change.

Fair enough.

Thanks a lot.

Congratulations on a good quarter.

Thank you.

Your next question comes from the line of Raymond Leung with Goldman Sachs.

Please proceed.

Thank you.

Hi, guys.

Just a quick question.

Could you address, Tom, what the strategy is on the accounts receivable facility?

I think you indicated that there is something that you needed to do on that next year, and also, a follow-on question about CapEx.

Any more guidance you can provide on what kind of flexibility you may have on the future CapEx budget if you do come in -- if we do continue in a more challenging economic/financing environment?

Our accounts receivable program is an annual program, so we renew that once a year, and we will be doing that again in February.

Candidly, we don't see any signs why we are not going to be able to successfully renew that.

Prospects are it might be a little smaller than what we've done in the past, but candidly, our needs haven't been as big.

So it is just an annual event.

And then on capital spending, we told that you we've taken $180 million, and again, reshaped it, deferred it, and I want to emphasize something, that part of that was to help us on cash flow.

But part of that made some sense to us anyhow, to execute our programs, in a more orderly basis.

So it really isn't deleting anything, it is deferring.

We have already put together another plan, if we needed it, to do a like amount, another additional amount of capital spending deferrals, and again, not deletions.

So, we will look at that if we need it .We feel pretty good about where we are now.

Keep in mind, some of the deferrals that we talk about are things like new business.

When new business is down, we don't have to spend as much, some of our outages can be adjusted.

There are just a variety of things that we are able to time differently, and that's all that we're doing at this point.

Okay.

Great.

Thanks.

And just quickly, what is the current rate on the AR facility?

A little over 3%.

Great.

So it is probably -- it is a little inside of where our revolvers are, so it is attractive to us, but keep in mind, when we renew it in this market, we will have to do a little negotiating.

Fair enough.

Thank you.

At this time, there are no further questions.

All right.

Well, thank you for joining us this morning.

We have continued to, I think perform well in a challenging time.

We've made some prudent adjustments we think to our plan, but are comfortable with our long-term outlook and look forward to seeing you all at the EEI conference.

Thank you.

This concludes today's conference.

We thank everyone for your participation.