CMS能源 (CMS) 2010 Q1 法說會逐字稿

Good morning everyone and welcome to the CMS Energy 2010 first quarter results and outlook call.

This call is being recorded.

Just a reminder, there will be a rebroadcast of the conference call today beginning at noon Eastern time running through April 30th.

This presentation is also being webcast and is available on CMS Energy's website 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, Eric.

Good morning and thank you for joining us today.

With me are Dave Joos, President and CEO, John Russell, President and COO for Consumers, 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 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 factor sections discuss important factors that could cause results to differ materially from those anticipated in such statements.

This presentation also includes non-GAAP measures.

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 2010 reported earnings to be about the same as adjusted earnings.

Reported earnings could vary because of several factors.

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.

I'll start the presentation with a few brief remarks about the quarter.

Before I turn the call over to John Russell, who will give you an update on the business and regulatory agenda, and then Tom Webb will take you through a more detailed discussion on the financial results and the outlook for the remainder of the year, and then we'll close with questions and answers.

First quarter 2010 adjusted earnings were $0.38 a share, up $0.07 or 22% from 2009.

The increase was primarily due to the effect of the rate relief on both the electric and gas sides of the business, partly offset by unseasonably warm weather and other items Tom will discuss in more detail in a few minutes.

For the full year we expect adjusted earnings of $1.35 a share, unchanged from our previous guidance.

Although it's old news to almost everyone, we raised our dividend 20% in the first quarter of 2010 to an annualized $0.60 a share, reflecting the confidence our Board has in the business plan and the progress we've made over the past year.

I'm going to turn the call over to John Russell, but before I do I want to make a few comments about the transition of leadership here at the Company.

Ken Whipple, our current Chairman, has reached our mandatory retirement age and will step down from the board at our annual meeting on May 21st.

He has been an outstanding Chairman and we'll miss him.

Because we believe in separating the role of the Chair and CEO, I decided to retire as CEO to assume Chairmanship at that time.

Frankly, now that we've completed our corporate restructuring to focus on the utility, it makes sense from a continuity perspective to turn the reins over to John Russell, who has been the President and Chief Operating Officer at Consumers Energy since 2004.

John's experience in leadership of the utility business makes him the ideal candidate to lead the Company as we focus on our growing forward strategy.

I know many of you have already met John at various events over the past few years and will agree with me that he brings a high level of dedication and energy to the Company.

John has already announced a few key changes to his senior management team that will take affect at the annual meeting or near that time as well.

And we've been planning those changes as part of the transition, so I'm confident the change will be seamless and allow us to continue the progress we've made.

Now let me turn the call over to John to discuss his priorities for 2010 and our key regulatory matters, John?

Thanks, Dave.

Good morning, everyone.

For 2010 our major priorities haven't changed.

There are no changes in our financial objectives for earnings, cash flow, and capital structure that were set out in early March.

Tom will review each of them with you in a few minutes.

Safe and excellent operations is the foundation of our business strategy and we will continue to focus on ways to improve our operational performance.

Our plan is to invest $7 billion in the utility over the next five years and that will result in a rate-based growth of about 7%.

We believe the regulatory structure and the Michigan energy law supports the fair and timely recovery of these investments.

We will continue to take an active role to influence national energy policy being debated in Washington, which serve the best interests of our customers and our shareholders.

Our balanced energy initiative has a two-tracked approach.

Our base plan includes building a new clean coal plant.

Our other plan assumes replacing the clean coal plant with various alternative investments.

Whether we end up building a new clean coal plant or making alternative investments, we don't believe it will have a dramatic impact on our future growth plan.

We have plenty of investments to invest in.

The contract with our unionized employees expires in June.

We have reached an agreement with the union on a new five-year agreement and it is in the process of being ratified.

The results will be known in May.

Now let me give you a brief update on the timing of a couple of key regulatory cases.

We self implemented an $89 million revenue increase in the gas rate case last November.

The staff and ALJ have filed their recommendations and the case is ready for a final order in May.

We filed a new electric rate case in January, seeking $178 million rate increase.

We plan to self implement a rate increase in July.

Last October, the commission directed Consumers to reconcile the amount it had spent for tree trimming and O&M expense during the period 2006 through 2009.

Because the amount we spent exceeded the amount collected in rates, we continue to believe we don't owe a refund.

The staff has recommended a refund of $27 million, whereas the ALJ supports our position of no refund.

A final order is expected in the second quarter of this year.

To comply with the requirements of the electric decoupling mechanism approved in last November's electric rate order, we plan to file an annual reconciliations with the commission in the first quarter of 2011.

We expect recovery in 2012.

Here's a little more detail on the gas and electric rate cases.

On March 24th the ALJ proposed his -- filed, excuse me, filed his proposal for decision in our gas rate case, recommending a $60 million rate increase.

The two primary differences from the $89 million the Company self implemented are a lower return on equity and a lower uncollectible account expense.

The ALJ supports the sales decoupling mechanism proposed by the Company, with a modification to reflect weather-normal consumption.

He also recommends approval of the pension and OPEP trackers.

However, he does not support our proposed uncollectible tracker.

The final order is due no later than May 21st.

The schedule has been set for the electric rate case.

We must file by June 28th.

The tariffs we plan to self implement on July 22nd.

The staff will file its testimony on June 10th, excuse me, and the ALJ's TFD will be filed on September 16th.

As Dave said earlier, our full year adjusted EPS guidance remains at $1.35 a share.

Our adjusted EPS has grown at an average rate of 8% over the past six years and our growing forward strategy, supported by the regulatory construct and the Michigan energy law, should permit us to deliver 6% to 8% EPS growth going forward.

Our current dividend payout ratio has grown over the past four years and is currently at 44%.

Now let me turn the call over to Tom to discuss the first quarter results.

Thanks, John.

And I'm pleased to add my welcome to everyone on the call this morning, so good morning.

As Dave mentioned, first quarter earnings were $0.38 a share, up $0.07 or 22% from a year ago.

These results exclude onetime costs of $6 million associated with downsizing needed in the first quarter.

We reduced the size of our work force by 350 people, or nearly 5%, in order to keep our costs as low as possible for our customers.

Most of this was accomplished through voluntary retirements across our entire work force.

Weather in Michigan has been unusually warm in March, as well as the early part of April.

Excluding the impact of mild weather, results would have been $0.42 a share.

Compared with the first quarter a year ago, the improvement in earnings of $0.07 a share included a milder weather and lower demand rate, more than offset by decoupling, the continuation of approved higher rates, new gas rates associated with our self implementation last November, and cost reduction.

The cost reductions include the benefits of downsizing mentioned earlier.

For the rest of the year, we still expect to generate sufficient earnings to achieve guidance reaffirmed at $1.35 a share.

Lower forecast sales mix and higher than year ago costs are more than offset by decoupling and associated rate increases.

Higher costs include capital investment at the utility, interest expense associated with pre-funding 2011 parent debt maturities and gains on early debt retirement last year, as well as the impact on share count associated with our higher stock price.

These actions provide for strong earnings, growth, liquidity and risk mitigation.

As in the fourth quarter of 2009, we continue to see good signs of recovery.

For example, Ford, GM and Chrysler substantially increased production with overall US auto production up 68% for the year through April 17th compared with the same period a year ago.

Recall, of course, that production levels were very low last year, but the higher levels of production this year were accomplished without increasing inventory.

Days supply in April were at 53 and that's substantially below the levels in 2009 at 84 days.

The Michigan real gross state product is forecasted to be up in the first quarter compared with a decline of 3% a year ago.

Manufacturing employment also is up compared with down 12% a year ago.

More specifically for CMS, electric sales in the first quarter were up 2% from last year, led by the industrial sector up 12%.

After declines of 2% in 2008 and 3% in 2009, we now forecast sales for 2010 to be up 2% for the industrial sector leading commercial and residential sales recovery.

Now we're still cautious and we'll be watching the improvement with great care and will keep you posted on a regular basis.

Another important sign regarding the recovery is that we now anticipate the sharp rise in uncollectible write-offs over the last two years to subside just a bit this year.

As you know, for the electric business we have a tracker that permits us to offset 80% of changes and writeoffs whether increases or declines.

We've requested a tracker for the gas business in the pending rate case.

Our trackers and our sales decoupling mechanisms provide good tools for risk mitigation and should sales and/or uncollectible accounts improve, we're able to share the good news with customers without jeopardizing our ability to earn our authorized return.

Here's an example of how the sales decoupling worked for the residential sector during the first quarter.

Average monthly sales per customer were down 22-kilowatt hours from the approval rate ace level.

This will result in a lost margin and recovery surcharge of $6 million.

We'll request decoupling recovery by March of next year and expect an order to enable cash recovery in 2012.

Here's a comprehensive summary of sales and decoupling for the first quarter compared with the year-ago.

Although weather adjusted electric sales were up 2%, adverse weather and the loss of large bundled customers to retail open access resulted in an earnings drop of $0.07.

Of this, $0.04 should be recovered in our decoupling mechanism.

Lower gas sales reduced earnings per share by $0.06.

The majority of this was due to adverse weather and of course we don't have a gas decoupling mechanism yet.

Let me cover the $0.05 decline associated with a large electric customer in a bit more detail.

As gas prices and energy rates fell during the deep recession, the numbers of customers enrolling in the retail open access program reached the cap, 10%, late last year.

That's up from 4% a year ago.

This shift was the primary reason for lower demand from our large bundled customers in the first quarter.

As shown on the prior slide and here, this reduced earnings by $0.05.

Of this, $0.03 should be offset in decoupling recovery.

Now changes in the use of demand rates are not captured completely in the sales decoupling mechanism.

As you know, demand charges occur when large customers use energy in peak load periods.

We, of course, don't realize these charges from customers who shift to retail open access.

Over time, this will level out in rate making.

Also, the shift to retail open access is capped at 10% and we provided for the full year impact in our earnings guidance at $1.35.

Cash flow remains strong, with the utility operating cash flow growing each year by about $100 million as a result of our planned investment program.

After investment and dividends to the CMS parent, Consumers Energy cash outflow is expected to be about $600 million.

This includes a contribution of $97 million to our pension fund completed just this last month.

We've already financed much of our cash needs with $200 million of the $250 million equity investment from the parent into Consumers [complete] and $300 million of $550 million of planned new debt in place.

We forecast that the parent sources of cash will be $415 million in excess of interest, overhead, and taxes.

This provides substantial headroom for common dividends.

Expect to end the year with more than $0.25 billion in cash and more than $0.5 billion of available bank facilities.

We've already secured sufficient cash to meet all debt maturities coming due at the parent this year and next year.

In addition, we've secured $300 million of new debt planned for the utility this year through the form of a delayed draw mechanism.

This allows us to lock in favorable rates without carrying the cost of new debt until the planned run in September when we need the cash.

Many of you have read about the loss of retiree prescription drug tax subsidies that were eliminated in the new healthcare laws.

And this was recently enacted by congress.

For CMS, the loss deduction is worth $68 million, of which $65 million has been reflected as a regulatory asset.

We've recognized $3 million in our income statement and that's for our non-regulated business.

Now, here are earnings and cash flow sensitivities to major changes in projected assumptions for 2010.

Although we have protection from electric sales variations, we're still exposed to sales changes at our gas business until a decoupling mechanism is approved.

Although gas prices are soft, changes of $0.50, up or down, would impact short-term cash flow by about $30 million in the opposite direction.

And of course, if we improve or fall short on our forecasted ROE by 50 basis points, this could impact earnings by $0.08 and cash flow by about $35 million.

Our risk mitigation plans are working well, but we remain vigilant about changes in market conditions.

Last, here are key financial targets for 2010.

We are on track to meet each of them and as we've done for the past several years, we'll continue to review this report card with you each quarter to monitor our progress, whether it's good or bad.

So thanks for your interest and thank you for your support.

Dave, John and I are happy to take your questions.

So operator, could you please open the line for questions.

(Operator Instructions) Your first question comes from the line of Dan Eggers, Credit Suisse.

Please proceed.

Hi, good morning.

Dave, I guess, first off congratulations on the new responsibilities.

I was wondering if you could just kind of run through how you see your day to day responsibilities changing and how you see the chairman responsibility under your watch and what you're going to focus most significantly on.

Well, obviously the day-to-day responsibilities will be turned over to John Russell, but that doesn't mean I won't be involved.

In fact, I'll be following a similar model that Ken Whipple has used for his time since I've taken over as CEO.

Ken has been at the Company in person at least a day a week and sometimes more than that, gets involved in overall policy discussions.

I'll continue to do that as well.

And in addition to that, through a transition period with John here, I'll continue to have some oversight role in certain key matters that I've been leading.

For example, some of the regulatory policy issues in Washington that we're dealing with on transmission and the like.

And John and I are pretty much aligned on these issues.

That will allow him to get his feet on the ground in certain of the other areas and we will make the transition probably over about a year timeframe.

But I will continue to be involved at high level, as is appropriate for the chairman.

We've had a more active chairman here than maybe some other companies do and we'll continue to have that.

Okay, great.

And I guess just can you guys give a little sense of the political environment in Michigan with the gubernatorial elections coming and is there any indication or potential indication of changes in energy policy in Michigan with the elections?

I've actually been reasonably close to all this, both in my role here at the Company, but also my role as Chairman of the group called Business Leaders for Michigan.

We spent a lot of time with the various candidates, quite frankly.

It's a pretty much wide open race.

There are five announced republican candidates, three democratic candidates and the primaries won't be until August.

So, we'll see where that narrows down.

I would tell you though that energy issues have not been a platform of any of the candidates to date.

I'm not overly concerned.

Most of them have positions that are sort of consistent with our views on what needs to be done here in the state.

Obviously in Michigan, with high unemployment rates, one of the big concerns is job creation.

And we, with our investment profile, are one of the larger job creators and I think folks recognize that.

So I'm not expecting any broad changes in policy and I do expect that to continue with the relatively supportive regulatory structure that we have here in the state.

Okay and I guess kind of a last question, just on choice volumes in the quarter and trends there.

Looks like your volumes were a little bigger.

Can you just kind of give some color on what you're seeing out of choice customers today?

Is there any mix change going on?

And kind of any rumblings right now to maybe change that model to open up choice to a wider audience?

Dan this is John.

The customers that left us -- I think you know the way the model works is that they give us advance notice before they leave.

What we saw this year is some larger industrial customers go to choice compared to some of the more commercial oriented customers that we've had in the past.

And part of that was driven, as Tom indicated, by the lower gas prices and the lower prices in [misol].

As far as changing the law, changing the law to raise the cap involves a lot of work and it also involves a lot of other issues, such as renewable energy, energy optimization and some of the other key components of the energy legislation.

So as far as moving it forward, I think today there has been some rumblings in Lansing, but nothing has been outright proposed by the legislature, nor do I see them doing that in this timeframe.

Dan, I might only add that I think this is working exactly as intended.

When we went to the legislature and said that we needed to make capital investment in the state and we couldn't do that with the uncertainty under the existing law, and we had the potential for ROA moving up and down with changes in gas prices and markets, it was important that they put some stability in place.

And I think most the folks we talked to understand that's exactly what has happened and are supportive of maintaining the cap rate where it is.

Okay, thank you, guys.

And, Dan, I'm just going to add one comment to that from a numbers standpoint.

In a way, we were fortunate to know that the movement to 10% was happening during the course of last year.

So we were able to provide for much of that in our plannings and our budgets for this year, which makes it a little less painful.

Thanks, Dan.

Your next question comes from the line of Paul Ridzon with KeyBanc.

Please proceed.

It's kind of a new issue that's obviously going to hit this sector, but what's your level of confidence that the healthcare bill booking guide as a reg asset is not going to cause some regulatory feathers to get ruffled?

I think we're in good shape.

Remember, this is something that was actually put in place a few years ago in one direction and we put all those benefits as appropriate at that time through the system.

Now it's just a tax going in the other direction.

So we're just reversing where we were.

So we have lots of circumstances where the recovery of this sort of thing has been handled in a very smooth fashion and because this is sort of breathing in and breathing back out, we don't expect there will be a problem here.

Thank you.

And secondly, if I look at page seven of your text release, your sales volumes kind of indicates that industrial sales are down and then your slide deck shows them up.

Maybe I'm reading this wrong.

You need to look at the entire piece.

When you look at industrial sales, you want to pick up what's called the other in wholesale and all that, because there's a mix in there.

And the most important piece of the mix to see is a lot of the increase was with our retail open access customers, so some of our bigger industrial customers chose to go ROA for now.

And that's what caused a little bit of this loss of demand revenue, which was causing the earnings to go down while the sales were actually going up.

Industrials are using more.

You're just not getting the margin on some of it.

That is exactly right.

Okay, thank you.

I understand.

Thank you.

Your next question comes from the line of Steve Fleishman with Bank of America/Merrill Lynch.

Please proceed.

Yes, hi, good morning.

Good morning, Steve.

Yes, a couple of questions on the breakout of earnings drivers on page five.

It looks like at the utility there's a PSCR disallowance of $0.03.

Is that related to this quarter or prior periods?

And why wouldn't you have pulled that out as a onetime item?

Steve, this is John.

It was from prior periods.

Part of it had to do with the disallowance in some work that we did at the Campbell 3 facility.

The other was a disallowance of the discounts on an economic development rate for one year, but we booked three years worth of cost for that.

So it was prior.

As far as adjusting it out, I don't think that's appropriate for what we're doing here.

I mean they're operational costs and ongoing costs that we think is right.

We pretty much on PSCRs and GCRs, whatever they are up or down and sometimes they are catching up from a year or two ago, we flow those through as normal.

Okay.

And then secondly, at enterprises in the first quarter you earned, looks like you were up $0.03 and you earned $0.03, I think.

And I think -- that's not true, you lost money last year?

Yes and the main thing is we have some good news this year at DIG inside the enterprise operations where currency, not currencies, but the prices are working in our favor in terms of the contracts we have.

So part of that's a little bit of mark-to-market benefit for us.

And so we're getting closer to sort of earnings level that we like to be able to show you each year for them.

So bad news last year; good news this year.

Okay, because your target for the full year was $0.06 and in the first quarter you earned $0.04.

I'm just curious, is it--

No change.

Are you -- no change?

No change in the outlook.

Is that just being conservative or is that just the way that DIG actually flows through?

We are operating well at DIG and we will watch what happens in the mark-to-market as we go through the year.

Okay.

One last question on the sales forecast, could you more specifically kind of lay out what your new forecast is by customer class and overall versus your old forecast because my recollection is your old forecast was down overall?

It was and I would be happy to help you on that.

Good way to look at that for those of you that can is on slide 11.

You'll see that we're now saying overall our sales will be up about 2% and that includes that 8% increase.

Now, when we were looking at this previously, the last time we talked, we told you those overall sales would be down about 1%.

The bulk of that change is in that industrial improvement.

We still see for the year compared to the prior year that our residential sales will be off just a bit, maybe as much as 1%, and that our commercial sales will be up just a bit.

And then I would call that flat to 0.5%, with the industrial sales up 8%.

So we've seen really good news on the industrial side, a little easing of the pain on the residential side, and a bit of a swing on commercial from negative to slightly positive.

And all that's added up to the total going from 1% down to 2% up.

Again, we're going to watch that with a lot of care.

We feel really good with what we've seen in the fourth quarter, really good with what we've seen in the first quarter, but we've got to make sure this industrial recovery sustains.

But that's what's going to pull the residential and the commercial sales back up.

Okay, thank you.

Yes, thank you.

Your next question comes from the line of [Lauren Duke] with Deutsche Bank.

Please proceed.

Hi, guys.

How are you?

Good.

Good morning.

I just wanted to ask another question about the demand charge issue.

So you were saying that you don't get to recover, I guess, the loss demand charge when the customers switch to retail open access.

Is that something that you used to be able to recover under the choice tracker or no?

No, not really.

You might recall that last year we had good news around the demand charges because, yes, sales were falling off.

People were still running certain shifts to meet their demand where they had to pay a demand charge to us.

Now as customers have moved, some customers have moved to retail open access, we are not permitted to pick up that demand charge through our tracking system, or if you will, our decoupling system.

So as they walk away, we don't get that.

Now, as we go through time, that will get corrected and [eased] out in our rate cases.

And the good news is we're at 10%.

That's the cap.

We've got it all covered as we go through the rest of the year.

Right, right.

So you shouldn't keep seeing an impact from that looking at the continuing quarters because you've already hit the cap.

So there shouldn't be more impact from lower demand charges?

I encourage you to look at the slide number 15 on retail open access.

Because remember, the retail open access enrollment increased as we went through the quarters.

Right.

Each quarter will be showing you an impact like this against the prior year quarter where retail open access sales were lower than they are this year.

So you'll see this each quarter as we go through the year, but we've got it all reflected in our guidance.

Right, right.

And then if I could quickly also ask, can you just talk a little bit about residential sales.

I know industrial's kind of the big driver for you guys this year on your overall forecast, but can you just talk about what you're seeing on the residential side a little bit.

Yes, happy to.

Residential sales stayed positive through a lot of the downturn of the last couple of years.

But once we got into the depths of the recession this last year, we watched the residential sales fall off by about 2.5% on a weather-adjusted basis.

You could see the economic effect of what's happening.

So as the industrials fell away, residential kind of followed.

What we anticipate as the industrials pick up and continue to improve over time, we'll see that residential sales side get a little bit better.

This year, we're telling you it might be about 1% down compared to last year.

And then as we get into 2011, that should flatten or improve a little bit.

So that's what we're seeing.

It's trailing where we are in industrial.

Okay.

It's trailing, but you're expecting it to get better later?

We are.

All right, thanks, guys.

Thank you.

Your next question comes from the line of Ali Agha with SunTrust Robinson Humphrey.

Please proceed.

Thank you, good morning.

Good morning.

Tom, could you remind us, your $1.35 guidance for the year, does that assume that you get your full self implementation on the gas rate case, that $89 million?

Is that baked into that guidance?

We do have self implementation built into this guidance starting in July, but obviously we aren't saying exactly what that number is.

Clearly it's not any higher than $178 million, but it's something a little short of that.

Our whole approach here is to reflect exactly what our cost structure is and exactly what our recovery needs are.

As you know, we've been able to do a little bit of cost reductions here, but to the extent that we don't need recovery, we'll reflect that in our sales implementation.

I guess, Tom, I was actually talking about on the gas side, where the decision comes out in May and you implemented that $89 million starting last year.

The ALJ obviously is about $20 million below your self implementation.

So I was just curious, are you assuming that the final resolution comes out closer to your number?

Is that what's baked into 2010?

Well, same answer is that we're close to the $89 million.

So we have a number, it fits in, that we believe is appropriate for recovery.

But we don't want to say exactly what we're showing and that will work out as we get the order.

But yes, we have self implementation number built in and it reflects the cost structure that we have in place.

Okay.

And separate point and John, I think you alluded to that as well.

You raised your dividend earlier.

You're now at a 44% payout.

I think you guys have also acknowledged that's not where your peer group is, which is still probably mid-60% range.

As you look to catch up to that payout, coupled with your CapEx programs, is that something we should think play out in the next three years, five years, eight years?

Could you give us some more color on when you expect that payout to be in line with your peers?

Yes, this is Dave Joos.

We've said all along that we intend to move it up toward the peers.

We've also said that of course we don't want to get there all in one step, particularly with our capital investment program.

But I think Tom showed you that our cash generation should be able to support increased dividends over time and the Board has indicated its intention to move the payout ratio over time.

We haven't set a specific schedule, nor do I necessarily think we'll get all the way up into the mid-60s in any time soon.

But we do intend to continue to move the dividend up, obviously contingent upon the kind of corporate performance we've been able to generate and we think we should be able to do that.

And last question, Tom, just to be clear, the year-over-year Delta on enterprises that we were seeing was predominantly driven by positive mark-to-market contributions.

Was that the key driver, if I heard you correctly?

That is.

That's correct.

Got it.

Okay, thank you.

Thank you.

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

Please proceed.

Hi, good morning.

Most of my questions have been asked and answered.

But just again on the dividend policy.

Given the comment earlier that you have sufficient headroom for common dividends, can we expect similar percentage increases, the dividend, like we saw this past quarter?

Well, I would like to give you definitive answer, but I don't have one at this stage.

I think the Board look at that, typically, at near the beginning of the year, as we have in the past and we'll see where we are.

I don't see any reason we wouldn't continue to move up in a similar fashion.

But obviously as we approach something closer to where the rest of the industry is, the percentage increases each year may not be quite as big.

But we'll have to make that decision when the time comes to it.

Okay.

Thank you very much.

(Operator Instructions) Your next question comes from the line of John Quealy with Canaccord Adams.

Please proceed.

Hi, good morning.

This is Mark Segel for John.

I was just curious, following your investor day comments on smart grid, can you give us a sense from a milestone timing perspective when you might expect regulatory approval and also technology and a vendor selection for full deployment.

Yes, Mark, we're working with several vendors right now, assessing their skill set.

As far as regulatory timeline of the rollout, we're expecting to begin full deployment in 2013.

And as far as regulatory recovery, we've already recovered in the last rate case a substantial part of the initial investment that we've made, around $80 million or $90 million.

So we continue to file rate cases with the investments that we're making in smart grid as we progress along.

Okay and just from the technology finalization, will that be concurrent with the full deployment in 2013 or will it be well ahead of that?

We're doing a couple pilots.

We've got a couple pilots under way right now.

Our intent is to ensure that the vendor promises that are made in partnering with them that we're successful in whatever rollout of technology we choose is successfully implemented.

So that is the right technology.

We're very active in Washington and with several of the regulators to ensure that we have standards that are correct and the vendors complete -- commit to the promises that they make when we rollout the right technology.

So, will it be done in advance?

It has to.

How far in advance?

It depends on what kind of rates we have with the vendors we select.

Okay.

Thanks very much.

We currently have no more questions in queue at this time.

Well, let me just wrap up then by saying we think we had a pretty solid quarter, obviously a little bit challenged by unseasonably warm weather here in the state.

But we've been able to deal with that, as we normally do, by managing our operations tightly and we will continue to do that through the year.

So we haven't changed our guidance for year-end.

I think we're on track at this stage at least for all of our financial goals.

And appreciate your participation today in our call.

Thank you very much.

This concludes today's conference.

We thank you for your participation.

You may now disconnect.

Have a good day.