CMS能源 (CMS) 2012 Q2 法說會逐字稿

Good morning, everyone and welcome to the CMS Energy 2012 second-quarter results and outlook call.

This call is being recorded.

Just a reminder, there will be a rebroadcast of this conference call today beginning at noon Eastern Time running through August 3. 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 Mr. Glenn Barba, Vice President, Controller and Chief Accounting Officer.

Please go ahead, sir.

Good morning and thank you for joining us today.

With me are John Russell, 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 website.

This presentation contains forward-looking statements.

These statements are subject to risks and uncertainties and should be read in conjunction with our Forms 10-K and 10-Q.

The forward-looking statements and information and risk factors section 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 investors section of our website.

CMS Energy provides financial results both on a reported, generally accepted accounting principles, and adjusted or non-GAAP basis.

Management views adjusted earnings as a key measure of the Company's present operating financial performance, unaffected by discontinued operations, asset sales, impairments, regulatory items from prior years or other items.

Certain of these items have the potential to impact favorably or unfavorably the Company's reported earnings in 2012.

The Company is not able to estimate the impact of these matters and is not providing reported earnings guidance.

Now I'll turn the call over to John.

Thanks, Glenn and good morning, everyone.

Thank you for joining us today on our second-quarter earnings call.

I will begin the presentation with a few brief comments about the quarter before I turn the call over to Tom to discuss the financial results and the outlook for the remainder of the year.

Then as usual, we will close with Q&A.

Second-quarter adjusted EPS was $0.40 per share, up $0.14 from last year.

Strong second-quarter results give us the opportunity to reinvest back into the system to further improve reliability and customer service.

Year-to-date results of $0.77 a share keeps us firmly on track to achieve our full-year adjusted EPS guidance of $1.52 to $1.55 a share.

In June, the Michigan Public Service Commission authorized us to increase our electric rates by $118 million and our gas rates by $16 million.

A significant portion of the amount authorized reflects our investment in distribution and generation reliability, environmental compliance and technology.

We have experienced extremely hot weather in Michigan during the past two months.

We set a record peak load for June and broke the all-time record on July 17, beating the previous mark by 2% set in July of 2011.

During this heat wave, our system performed very well and I will give you more details of that in a minute.

And later, Tom will discuss the financial impacts from the weather and the recovery of the Michigan economy.

As you know, we settled the gas rate case for the second consecutive time in part due to the relatively small size of the request.

The larger electric rate case was approved at $118 million, in line with the amount we self-implemented.

This case was primarily a recovery of investment costs representing 111% of the final order and lower operating costs, down $38 million from the prior order.

The Commission also adopted our sales forecast to reflect the 10% level of retail open access sales, up from 4% in prior rates.

This adjustment increased our gross margin by $48 million.

The Commission approved a 10.3% ROE for both gas and electric.

Over the past few months, our system has been tested by the hot weather and it performed very well given the extreme conditions.

On average, we have 10 days a year with temperatures of 90 degrees or warmer.

So far this year, we have had 26 days with temperatures over 90 degrees and two days over 100 degrees.

10 of these days were in the second quarter, contributing $0.03 of earnings to the electric business.

For the second consecutive year, we set a new peak load record.

This year's peak load was over 9000 megawatts, surpassing the previous mark set last year in July by 2%.

The trendline shows the peak demand has grown by 200 megawatts since 2006.

Weather was a key factor, as it was last year, but a growing economy also contributed.

Weather-adjusted sales are up 5% over the past three years, led by industrial sales and are expected to grow about 1% annually over the next five years.

To meet the growing demand, we have invested over $640 million to increase capacity and improve reliability over the past five years and we plan to invest another $155 million this year.

Continued investments are necessary to meet the future peak loads.

I also anticipate the need for additional generation capacity in a few years from now due to the load growth and the environmental rules affecting our coal fleet.

Our system has improved significantly since 2006.

Our peak load increased by 3% and the number of customer interruptions declined by 63%.

On this year's peak day, fewer than 1% of our customers had their service interrupted due to the heat and 99.9% of those customers had their power restored within eight hours.

The investments we have made to harden the system and improve operations demonstrate their full value in times like these.

Changing gears, Michigan voters will likely face a lengthy ballot in November.

Right now, there are seven proposed constitutional amendments expected to be on the ballot.

Among them is a proposal to require 25% of the state's electricity to come from renewable sources by 2025.

That proposal also would put a 1% cap on annual rate increases to pay for meeting that standard.

It would cost an estimated $12 billion for Michigan utilities to meet this standard.

A broad bipartisan coalition has been formed to oppose this reckless proposal.

That coalition includes labor unions, utilities, businesses, elected officials and community leaders.

Consumers Energy and the Utility Workers Union of America, which represents about half of our employees, are members of that coalition.

Many of you are aware of the retail open access legislation that was introduced in Michigan on March 21 to raise the cap.

On June 13, the Chairman of the House Energy and Technology Committee introduced legislation to return to full regulation.

The Chairman isn't planning on holding hearings on either bill.

The success of our business strategy depends on delivering reliable energy, which provides value to our customers at an affordable price.

A key to providing an affordable price is to continuously manage our costs.

Over the past three years, we have restructured the business, improved safety, productivity and employee engagement while reducing the workforce by 7%.

These improvements help us achieve our self-imposed restriction to keep base rates at or below the rate of inflation for the next five years.

Now let me turn the call over to Tom to talk about the results for the quarter.

Thanks, John.

We had a solid second quarter and we had good operating performance, constructive regulation and helpful weather.

Excluding the upfront costs of our successful employee restructuring, adjusted earnings for the second quarter was $0.40 a share.

That is up $0.14 or as John mentioned 54% from last year.

This included $0.03 for favorable warm weather in June.

Now please remember, in the first-quarter call, we noted that mild weather hurt us $0.13 a share.

We identified recovery actions to fully offset the $0.13 hurt and it is all done.

Our first-half results consequently are $0.77 and that's equal to last year.

The improvement in this quarter compared with last year reflects planned rate improvements, cost reductions, the continuing economic rebound in our service territory and better year-to-year favorable weather.

Now here is a simple overview of the year so far.

We hope you'll find it is a good illustration of our philosophy around meeting our commitments both to our customers and to you, our investors.

In the first quarter, earnings were pummeled by mild weather erasing $0.13 of EPS.

We not only committed to recover it all, we shared with you the line-by-line detail to do just that.

Some of the recovery was nonutility and a good portion came from natural offsets like lower financing costs and the lower-than-expected interest rate environment and lower customer bad debts during the mild winter weather where we had lower customer usage.

Recently, the hot summer, including a bit in June and a lot so far in July, provided $0.13 of good news.

We have no plan to change any of the recovery actions and we are already reinvesting some of the good news to help our customers.

We have increased tree trimming, we have pulled ahead some generation maintenance and we have accelerated hardening the system.

We are looking at even more opportunities to improve this reliability as we go forward.

Our customers will be better off and we will deliver our earnings growth commitments.

Here is a different view of the 2012 weather impacts shown on the left.

Recovery actions to offset the poor weather in the first quarter, and that is in the top right green box, and examples of re-investments in reliability that are underway to use some of this hot summer weather today and that is in the bottom right box in yellow.

If conditions provide further flexibility, we will add more customer investments.

We are just kind of old-fashioned about delivering our financial commitments and maximizing the benefits for our customers.

So our full-year earnings guidance remains unchanged at 5% to 7% growth, or $1.52 to $1.55 a share.

Now this is our traditional waterfall update for the first half now behind us and the second half ahead.

Winter weather was a big hurt that has dramatically offset this summer.

We are banking some of the cost savings associated with offsetting the unfavorable mild weather and we are reinvesting gains from the summer heat wave and customer reliability.

That is good news for everybody.

A

The economy in Michigan continues its rebound at a pace that is a step or two faster than the US economy.

We are bothered by national and global uncertainty, but so far, the recovery in Michigan continues fueled by constructive, more supportive state policies and the sound 2008 energy law.

So far in the first half, electric weather-adjusted sales are up 3% and you can see that in the bottom right-hand corner of this slide in the little gray area.

Now that is 3% in our service territory.

Also, industrial sales are up 7.5% and that is on tough comps from strong performance last year.

Residential sales are up 0.5 point and commercial sales were up 1%.

I know, I know.

Our full-year forecast is up 2%, I can hear you guys now, but that is in spite of our actual experience of 3% so far this year.

We planned conservatively.

Further, to understand the economy just a bit better, if we exclude our energy efficiency work, it adds a full point to sales.

So as you can see here, our sales growth of 5% over the last three years would be about 8%, excluding energy efficiencies and that gives you a clearer picture of the economic growth compared to the past.

Now looking a bit further out, it is clear that we will need more utility generation capacity, especially if the economy continues to do better than expected in our service territory.

If we are not able to economically upgrade our small classic coal plants, we will need to meet growth requirements without that 950 megawatts of capacity.

Our renewable expansion in windfarms and the Ludington Pumped Storage Plants will not be enough.

It is clear gas generation will be the fuel of choice.

Our options will include PPAs, purchasing assets and/or building new capacity.

Our challenge is to address this need and all the other investment demands without pushing investment beyond our self-imposed limit that keeps our base customer rates below inflation.

That is a tall order and one we continue to balance.

Adding or dropping $500 million over the next five-year period impacts base rates around 40 to 50 basis points.

Now this, of course, depends on the benefits associated with that investment.

The $6.6 billion of investment can be closer to $6 billion or maybe $7 billion, but we think, at $6.5 billion, it is about the right size.

Now as you can see on this slide, our plans keep electric and gas base rate increases shown in blue well below inflation.

Over the next five years, electric base rates are expected to be up about 1% and that is a third the level of the last few years.

Gas base rates would be up less than 1% and that is way lower than in the past.

Total electric rates, however, are expected to be up about 3% a year on average over the next five years.

We are working on reducing fuel costs to hold down total electric rates and you'll hear a lot more about this in the future.

Total gas rates are expected to be down sharply over the next few years and about 2% on average over the next five years.

A sample of cost reductions to help keep rates down are shown on the right box.

We reduced the renewable surcharge by $57 million, or 85%, by negotiating attractive construction contracts and capturing tax benefits.

As John mentioned, we have reduced headcount over the last three years by 7% and at the same time increased employee engagement by 4% to first quartile peer levels.

We introduced sharing of healthcare costs to 70% company, 30% employees and that saves $30 million a year.

Labor agreements provide for industry-leading work practices more in line with what our customers expect.

Productivity is up 35% over the last five years and we burn 97% Western coal saving our customers $250 million a year.

Now please note that these cost savings are designed carefully in a manner to avoid adversely impacting customer service or reliability.

According to Oliver Wyman and Associates, our O&M costs are first quartile among peers and our overhead costs near top decile.

We still believe that additional opportunities are abundant.

Our O&M costs are planned to be down about 4% in this year alone.

Our liquidity remains strong and by design, we keep a thicker level of liquidity than our peers.

We pre-fund parent debt maturities by a year or two in advance and we sustain a robust backup plan because we keep a level of parent debt that is just a bit higher than others.

We deploy our CapEx and utility investments with an after-tax return above 10% instead of retiring more debt at a 3% return.

We appreciate and deeply respect the positive outlook that the rating agencies maintain.

And here is our cash flow for the parent and the utility.

These continue at healthy levels.

For the rest of this year, our profit and cash flow sensitivities are less risky than they were at the beginning of the year.

This reflects having important rate cases behind us for the year and weather turning positively in our favor, not to mention the economic recovery that continues to outpace even our forecasts.

We are on target for all of our financial report card measures.

This is a good reflection of the health of our underlying, business both operationally and cooperatively from a regulatory standpoint.

We hope you find our performance lets you sleep at night and as always, we thank you for joining us today and we thank you for your interest in the Company.

So John and I would be pleased now to take any of your questions.

(Operator Instructions).

Kevin Cole, Credit Suisse.

Hi, good morning, guys.

Can you help me think through how long you possibly stay outside of filing a rate case for the electric and the gas side?

I notice the 3% labor reduction, which I assume are from the more expensive folks looking for early retirement and so is this kind of pure headroom to (technical difficulty) rate case enable you to stay into -- I guess stay in I guess a longer sale?

Yes, a little bit, Kevin.

Let me take this one.

Maybe a little bit, but our plan is still pretty consistent is that all of the cost reductions we are doing are to keep our rates down.

But also at the same time, we are making significant capital investments, which we need to get recovery for.

So I wouldn't expect on the electric side, we will be out much longer.

This just helps with headroom and on the gas side, I think you know as part of the gas settlement we committed to stay out until later this year.

So you would be a filer on the electric side by year-end or early next year?

Yes, this year.

This year, okay.

So just for clarity, gas we will file just toward the end of the year and electric, I think you should watch this spot.

We will come back in again this year all around that CapEx recovery.

And we will look for opportunities to extend that, but, right now, our plan is our annual rate case.

Okay.

And then I guess with the change in tone of decoupling, do you expect full decoupling is a possibility to come back again given the -- I guess the recent weather volatility, which demonstrates the need for full decoupling or if it comes back to a [retracking] mechanism, it would be largely focused just on energy efficiency?

Well, yes, as you know now, Kevin, the way it is set up because of the courts and the DTE case is that the decoupling has basically ended and I don't think there is going to be any pursuit of that in the future to the Supreme Court.

I think you know our philosophy though is that we would like to see decoupling or sales trackers of some sort.

Based on the litigation that occurred and the court ruling, it would have to be some kind of sales tracker.

But even though we benefited from the weather this summer -- obviously, we are doing well this summer -- we didn't benefit from the weather this winter because it was so warm.

So I think the type of business that we are, the consistency and the tracking of sales would be the right approach to do.

But right now, what we have is simply the tracking of the energy optimization.

Great, thank you, guys.

Naaz Khumawala, Bank of America-Merrill Lynch.

Good morning.

Just a couple of quick questions.

One, in terms of -- I think you talked about the record peak in MISO and on-air system.

I think you alluded to this in the call that you guys do have some plants that you are considering mothballing or retiring.

So can you give me more color on whether you are trying to look for environmental controls on that or what type of new generation you want to build?

I guess you still have the air permit for the coal plant.

Yes, let me go through it.

I mean we have talked about the seven classics.

These are our smaller, older coal-fired units.

We have decided to mothball those, which we can under the MISO rules, for three years and bring them back if we need to.

But if we did, we would have to have full controls on those units.

So I don't think that is likely based on what I see the EPA doing in the near term.

However, the future really we think is dependent on natural gas generation.

I think the fracking is a game-changer.

Going forward, we are building -- just to make it clear and we talked a little bit about -- is that we are building renewables now.

We are upgrading Ludington Pumped Storage.

It is important for us to keep a balanced portfolio, which is both the coal, the renewable, as well as the natural gas.

But my expectation is to fill this void we are going to have in the future.

It will be natural gas generation.

Okay, thank you.

That's helpful.

And then, sorry, one more question.

I think that you have alluded to both of the House bills that are talking about choice cap and then the governor is supposed to do an energy speech in the fall and I think he was also looking at choice cap.

Do you know kind of where the thought is on what are the possibilities and if you can just give us more information on that?

Yes, you are right on all the things that happened at the House.

The governor has talked about coming out with a plan in the fall.

It is his plan.

I mean that is something that I don't want to preempt him nor do I know what he is going to say.

He has not talked much about or at all about the cap.

What he has talked about is energy infrastructure.

Do we have the infrastructure moving forward to be able to grow with Michigan's economy?

And as Tom mentioned to you, we are seeing the industrial sales continue to grow at a pretty rapid pace and maybe even unheard of compared to other utilities in the country.

So he wants to have the growth here and the infrastructure in place to move forward and certainly with Michigan's unemployment, he would like to make sure that the jobs fall in line with that too, the job creation.

Okay, thank you.

Paul Ridzon, KeyBanc.

Good morning.

Does this 25 by 25 constitutional amendment have any legs?

It depends what side you ask.

From our standpoint, no, but they are going to put up a good fight.

We are not underestimating this in any way.

They have got -- I think they believe they have got over 500 signatures right now that the Board of Canvassers is looking at, which they need to approve by early September.

I believe there is financial backing behind it.

It is very unique though, Paul, that this plan -- this plan has been done in other states, but it is done for legislative changes.

This is a constitutional change.

So it is the first time that they have gone after a constitutional amendment.

So my view is I don't think we can take a chance not to be prepared for it and that is what we are doing right now, prepared to win.

So are there any campaigning or televised commercials or anything like that?

Not yet.

I expect there will be.

Are you saying in the future?

Yes.

Yes, I suspect there --.

The Chairman of the Energy and Technology Committee, he introduced a bill to reregulate, is that just tit-for-tatted against the ROA raising the ROA?

Well, I mean you would have to talk to him about that.

But obviously he was part of the energy legislation in 2008 and thinks it is a good law and I think the statement speaks for himself that when you look at the cost shift for customers, for a few customers taking choice, it probably isn't in the best interest of everyone.

And particularly when you look at the slides that Tom showed you today about the need for additional capacity.

We have been through that here in Michigan back in the early 2000s -- I think in 2000 when we deregulated and it just didn't seem to work very well.

And it sounds as though you are going to just kind of manage your own [outfit] to hit your guidance, just kind of throttle it back or forward as the weather dictates?

Well, yes.

And you make it sound like we are going to work the numbers.

That is not exactly how we are going to do it.

And I think of it this way.

As you saw in the first quarter, when times are tough, we are going to do whatever it takes to do the right things and not hurt our customers, but deliver the results.

And we have got a pretty long track record of doing that.

But on the other hand, when we get the good news and I know not everybody likes hearing this, but we get good news whether it is weather, whatever it may be, we are going to take that opportunity and invest more in our customers and it is just the right thing to do.

It will give you a sustainable growth, 5% to 7% on the earnings side and better served customers and therefore happy customers make for a successful company.

So we are very much driven that way.

And please don't think of it like we are working the numbers.

We are actually working the business.

So when we talk about what we are doing now, we are doing more pole-top maintenance, we are doing things that enhance the reliability with our transformers, things that allow us to get work done sooner than we would have otherwise have done and that is good for everybody.

Understood.

And what is going on with the lost gas?

Is that new metering infrastructure that is allowing that?

No, no big deal there.

That is just doing the good job that we do and during this year, we had a pretty mild winter.

So think of that rolling through the first and second quarter and therefore, you are pumping less gas, you are moving less through the system and that helped us in a couple of ways.

We didn't like it, but it helped us with lower bills, so lower uncollectibles and less lost gas.

It is kind of a natural offset to that downward slope of the business when the weather was mild.

Nothing special.

Thanks again and congratulations on the good quarter.

Thank you.

Thanks, Paul.

Ali Agha, SunTrust.

Thank you, good morning.

John and Tom, you guys have made a consistent argument that the utility companies in Michigan should have a level playing field as far as ROEs are concerned.

I didn't see that in your latest rate case.

Is that issue now pretty much done or do you think that could come back?

Do you see the 10.3% really as a floor ROE right now?

What is your latest thinking on that?

Well, I can't predict what the Commission will choose to do in the future.

That would be kind of out of my shoes.

But what I can say is I believe what they are trying to do so far is to provide the utilities with a premium above what other utilities are getting and we are kind of pleased with that.

And so at 10.3%, I think we are in good shape.

We are clearly there for this year, but with our annual rate cases, we will be facing that again next year as we go for the electric and gas cases that may come up.

And again, I think the commission is trying to get to a healthy utility that serves its customers well.

So it is good news when they see as pouring resources back into the customers and trying to earn our authorized rate of return, but not a lot more, not a lot less.

And so that is a pretty nice place to be.

So I can't tell you the number is going to be higher or lower than 10.3%.

I feel pretty good about where that is.

It is very workable for us.

But I can take you to the sensitivities so that you can see what the impact is if it moves up or down.

If it moves a little bit, we can handle that.

If it moves a lot, that is another discussion.

And separately, the balancing act that you referred to in terms of your CapEx budgets and keeping the rate growth at a certain level obviously has a built-in assumption on how you see commodity prices trending over the next five years.

To the extent that we see commodity inflation pick up for whatever reason and prices start to really move up like they did a few years ago, how sensitive are you to that as far as your CapEx plans are concerned and how should we be thinking about that from a sensitivity perspective?

One of the things that we like about our position is the fact that we do have a balanced energy initiative and that is the fact that our portfolio is well-balanced between various fuels.

So it really desensitizes us, if you will, to dramatic changes in price based on fuel.

For instance, I mean right now our coal fleet is running less than it did last year, but, as you know, we picked up the Zeeland plant, which is about a 1000 megawatt gas plant.

That is running at 88% compared to around 28% the previous year.

So that balance really works out well for us.

I expect that whatever we do in the future, we will continue to be balanced with coal, natural gas.

We have got a long-term commitment for a nuclear plant.

We have got renewable energy, we have pumped storage and we have our energy efficiency programs that we are working on.

But for the near term, if you look at five or seven years, I think the generation that will be built in this state by anybody will be natural gas.

And so, John, just to be clear, there may be puts and takes and things may move around, but you are very confident that that $6.5 billion, $6.6 billion CapEx budget one way or another does get spent over this five-year period?

Oh, yes, yes.

And as Tom said, I think Tom described it well.

We self-impose the amount that we spend there, but if it moved a little bit -- but, yes, as far as spending it, absolutely.

We have more than enough issues that we could resolve and help our customers by spending that money.

So yes, don't be concerned about that.

Understood.

Thank you.

Brian Russo, Ladenburg Thalmann.

Hi, good morning.

Most of my questions have been asked and answered, but just curious, we have seen some improvement in the electric equity ratios over the last 12 months.

It looks like 41% on the 13-month average and you were granted a 42% in the latest GRC.

Maybe you could just talk about the appetite for higher equity ratios going forward.

Brian, I would just have you think of those as anomalies.

We will go for -- if you don't mind, I will use the total number.

We will go for that 50/50 ratio.

We may be a little bit higher at some points when we are putting the money down into the utility or maybe a little bit lower at some point.

So depending on the period that you are looking at, it could vary a little bit, but our goal is to be right about at that 50/50 level and we will be trueing up when we fall a little short and we will let it drift when we get a little bit ahead.

There is no big issues for us to be a little bit higher or a little bit lower, but we would like to be in that sweet spot the Commission prefers.

Okay, understood.

Thank you.

Mark Barnett, Morningstar.

Good morning, everyone.

A couple of quick questions.

This may be a bit of a departure from some of the other questions this morning, but can you talk a little bit about, with your PRB burn, kind of where have your rail agreements on your coal moved over the past year or two and do you see those kind of moving forward as an area of potential cost, further cost reductions in your fuel?

Yes, as you know, over time, we had some long-term contracts that, as they were renewed, turned into a little bit shorter-term contracts.

When the environment of the switch to gas, there has been desire on all parties' parts to actually lock up maybe some better deals.

So we are in the middle of good discussions with our rail carriers and we are optimistic we can do things that are useful to them and useful to us.

So that is an area I think you might see as opportunity going ahead.

Okay.

And on the industrial number, obviously pretty strong through the first six months.

Can you talk a little bit about what is driving that outside of the kind of improving auto sales?

Sure.

The way to think about the industrial side is we are pretty well-diversified.

I know when you think Michigan, sometimes people think Detroit or sometimes they think auto.

When you are looking at our service territory, don't think either.

We are outside of that area.

The autos directly contribute about 3% of our gross margin, that and all their big suppliers.

So they are important to us.

But we are pretty widespread.

So we have furniture makers, we have food companies, we have pharmaceuticals, we have quite a wide spread.

What we are seeing is a layering in.

So a lot of the metal benders, auto-related and different people have had a big rebound already.

So you have seen our industrial sales up sharply and that is why I described this 7.5% against big tough comps.

Now what happens is there are other people who do better as you go through the recovery cycle.

So furniture makers, they typically do better toward the end of the recovery when companies start investing more in upgrading their furniture.

Well, we are seeing that.

And then you have got folks that are in I will call it solar panels and a lot of the new tech sort of things.

We have a big customer in HSC.

They are actually recovering kind of nicely and growing with that segment.

So we see a nice spread I think is the way you should think about us.

We are fortunate to have that and therefore, as some companies layer in their growth that they didn't come back as quickly on during the recovery, we continue to see some nice uptick.

So we are pretty happy with the 7.5%.

But I want to mute that a little bit and tell you our outlook, as you know, through the year on industrials is more like about 5%.

Okay, thanks for that.

Andrew Weisel, Macquarie Capital.

Good morning.

Just a quick one on the new generation capacity you alluded to.

I know it is far away and you have a lot of options, but any sense of the timeline of when we might start to get a bit more detail on how you would pursue filling that capacity shortfall?

Yes, I would suspect we would know probably more -- let's just go back to the chart, between '15 and '16 is when we begin to hit that shortfall.

So if we were going to buy, build, get into a long-term contract, which are really the options probably all with a natural gas fuel base, it would need to begin sometime early next year.

So providing some color within the next half a year or year something like that.

So if you do file an electric rate case toward the end of this year, would that conversation be folded into it or would it be kind of dealt with separately?

Yes, that is too soon for the electric rate case.

For the one that we will file by the end of the year, it will be too soon.

So it is something that we are looking at right now.

We wanted to give you a heads up because this capacity issue is not only a MISO issue and a Consumers Energy issue, it is going to be a national issue with some of the environmental rules that are going into effect in 2015 and 2016.

And as we have said before, we want to be ready for it and plan for the balanced portfolio.

So we are just giving you a heads-up what we are thinking about now and we will certainly provide you more details as we get closer to any type of decision.

Great.

Thank you very much.

Andrew, thank you.

We will try to help you rest easy.

Rest easy, yes.

(Operator Instructions).

Andy Levi, Avon Capital.

Hi, good morning.

I am all set, guys, but thank you.

All right, ladies and gentlemen, since there are no further questions, that concludes the Q&A portion of the call.

I would now like to turn the presentation back over to Mr. Russell for closing remarks.

Thank you.

Let me wrap up today's call by saying that we did have a good second quarter, both financially and operationally.

We are on solid ground to achieve all of our financial targets this year.

Our focus -- this is important for everybody to understand though -- our focus is and always will be on our customers.

Providing good value is our top priority at a cost-effective rate.

I appreciate you listening today and we look forward to seeing you in the future.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a wonderful day.