CMS能源 (CMS) 2012 Q4 法說會逐字稿

Good morning, everyone.

Welcome to the CMS Energy 2012 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 February 28.

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 to Mr. Glenn Barba, Vice-President, Controller and Chief Accounting Officer.

Please go ahead.

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 news release issued earlier today and the presentation used in this webcast are available on our website.

The 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 10Qs.

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.

A reconciliation of these measures to the most directly comparable GAAP measure is included in the appendix and posted on the investor section of our website.

CMS Energy provides financial results on both 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 2013.

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

Now I will turn the call over to John.

Thanks Glenn.

Good morning, everyone.

Thank you for joining us on our year end earnings call.

I will begin the presentation with a few brief comments about the year before I turn the call over to Tom to discuss the financial results from 2012 and the outlook for 2013.

Then we will close with questions and answers.

Safety remains a top priority for our Company and for our employees.

Our goal is for all employees to go home safely each and every day.

We have made significant strides to improve safety over the last few years and I am proud to say we are now positioned in the first quartile among our peers.

2012 adjusted earnings per share were $1.55, up 7% over the prior year.

Tom will provide further details in just a few minutes.

In January, the Board approved a 6% dividend increase, the seventh consecutive increase in as many years.

The new dividend of $1.02 per share results in a payout ratio of 62% which is in line with our peers.

We expect to continue to grow the dividend with earnings.

Overall, 2012 was another strong year for CMS Energy.

For 10 years CMS has delivered consistent financial performance.

Our 7% compounded annual growth rate since 2003 and dividend growth since 2007 have delivered strong returns to our shareholders.

Our capital investment plan drives and earnings and cash flow growth.

Over the next five years we plan to invest between $6.5 billion to $7 billion which includes the new gas plant announced last December.

We have lowered the high end of our previous range by $300 million from $7.3 billion to $7 billion helping to keep our customer base rate increases at or below the rate of inflation.

And we were still working to reduce it a little bit more.

If you look out another five years we have $8 billion more of needed investment projects to enhance the reliability and safety of our gas and electric infrastructure systems.

We were confident in our plan and our ability to execute it.

Last year during our investor day at the New York Stock Exchange, I reported on a number of metrics we track very closely.

We call these break through goals and they start with safety.

Our Company is committed to working safely every day whether it's in the office, on the road, or getting the lights back on.

We have seen a 75% reduction in the number of incidents since the goal was set in 2006.

Through operational excellence we deliver value to our customers who want affordable and reliable power.

Focusing on reliability has helped us continue running our generating plants at lower costs and improving our distribution performance.

Over the past few years, aggressive management of cost has enabled us to reduce our O&M and head count while improving productivity.

We are doing more work with fewer resources and our employee engagement scores are in the first quartile for the second year in a row.

Finally, the financial results speak for themselves.

Our business continues to grow at 5% to 7% with higher dividends and customer rate increases at or below the rate of inflation.

Our regulatory environment continues to improve.

Evident by some recent events.

In December, the Commission approved our DOE settlement which returned $23 million to customers and $12 million to share holders.

In addition, the Commission authorized accelerated recovery of $16 million for gas decoupling over three months to meet the deadline for accounting standards.

On November 30, Governor Snyder delivered a special message on energy and the environment.

The governor made it clear that changes should not be made to the 2008 energy law until the law is given more time to work in order to allow for a fair evaluation on issues like the renewable energy portfolio standard, energy efficiency, and the proper regulatory structure.

The governor called for 2003 (sic-2013) to be the year of study on energy policy.

The governor wants to ensure that future energy policy will be made in a thoughtful process based on data developed over the next year or two.

The governor directed the Chairman of the Commission and the director of energy -- the director of energy office at the Michigan Economic Development Corporation to conduct a series of energy forums to gather the public's opinion on Michigan's energy framework.

The Commission and the Economic Development Corporation have developed over 80 questions that they are seeking data driven responses to.

The facts will be collected in 2013 and then delivered to the governor for his review.

Regarding regulatory process changes, we have recommended a few rate adjustment mechanisms in the latest electric and gas rate cases that we believe will be fair and beneficial to our customers and help to streamline the rate making process.

And we will keep you advised of their success.

Our regulatory calendar remains on schedule through this year.

Looking forward, 2014 provides an opportunity to stay out of the rate case process.

This would require the approval of the proposed investment recovery mechanisms which have been included in both the electric and gas rate cases.

Our rate cases are heavily weighted with capital investment requiring us to file regular and routine cases.

An enhancement to this process would be the investment recovery mechanism that will allow the Commission to review and approve capital expenditures planned subsequent to the test year.

The proposed mechanism includes a true up process to ensure the investments are made or a refund will be issued to customers.

If approved as requested, we will increase electric revenue by $82 million and gas revenue by $70 million to cover future capital investments.

By aggressively controlling our cost, we hold down customer rate increases to less than 2%.

One of the ways we have been able to do this is by increasing productivity.

We have successfully completed three voluntary separation programs since the end of 2006.

Reducing the work force by 10% over the past six years.

In the coming years we expect to continue to reduce O&M through our smart energy program as well as the moth balling of our small coal fired generating plants.

As we look to the future, our investment plan will continue to drive transparent, predictable annual earnings per share growth of 5% to 7%.

Our investments for the next 5 years are up 40% from the last 5 years and about double what they were 10 years ago.

We have grown our dividend payout ratio to a peer average of 62% and plan to continue growing it with earnings.

We believe the Michigan economy will continue to grow at a pace slightly better than the rest of the United States.

Our plan assumes our annual sales will grow at less than 1% over the next five years.

And that number includes our energy efficiency programs.

By reducing O&M costs, we will lessen the increase in customer rate base increases and keep them at less than 2%, or as I refer to, the rate of inflation.

And we believe Michigan regulation will continue for -- to provide fair and predictable outcomes.

Now let me turn the call to Tom for a look at 2012 results and the 2013 outlook.

Thanks, John.

Thank you all for joining us on the call today.

We deeply appreciate your interest.

Our 2012 results are our best performance in 10 years and importantly this represents strong consistent improving performance year after year.

Our full year reported results were $1.42 a share or $1.55 excluding a decoupling write-off earlier in the year.

Adjusted earnings were up $0.10 per share, that's a 7% increase on the top end of our guidance range at 5% to 7%.

Our businesses operated well.

The utility was up $0.07 with strong sales and constructive rate cases supporting capital investment and accelerated reliability work.

Both enterprises and EnerBank achieved improved performance with enterprises and the parent up $0.03 from last year.

Here is the slide that's become more popular than we ever expected.

It's an update of the version we showed you in the first half of the year as well as in the third quarter.

As you can see we fully offset the adverse implications of unusually mild weather earlier in the year and that was a tall order.

Later we put to use the earnings benefit from the hotter than normal summer by investing substantially more in tree trimming and generating plant maintenance, system hardening and so on.

We also were able to make important contributions to low income funds and our foundation at the very end of the year.

It's our desire not to over earn or under earn our authorized ROE.

This allows us to deliver our earnings growth commitment to you while maximizing every opportunity to improve conditions for our customers.

Our approach is pretty simple.

When our customers win and when you win as investors, then we are successful.

As we look forward into the 2013, our top priorities continue to be improving safety and customer value, executing our investment plan.

Successfully processing the certificate of need for our new proposed gas plant.

Completing constructive electric and gas rate cases.

As well as achieving our 11th year of consistent strong financial performance.

With a highly engaged work force, these priorities focus us like a laser beam on our customers and on you our owners.

So here is our guidance for 2013.

Earnings per share is up another 5% to 7% for $1.63 or $1.66 a share.

This is accompanied with strong operating cash flow of $1.3 billion continuing our cash flow growth of about $100 million each year.

Importantly and perhaps unique to only a few companies in our sector.

Our new year guidance is built on our actual results from the prior year rather than prior guidance or budget or something adjusted for weather.

With minor exception, each year we've accomplished an EPS at the top end of our guidance range or above our point estimate and each year we've established our new guidance based on that high end performance.

This provides a unique healthy growth pattern that maximizes earnings and dividend growth for high end total shareholder return.

As you can see in this water fall slide, our growth will again come from our core businesses.

Our gas and electric utilities.

Our investment program drives this growth and it provides for improved service and reliability to our customers.

The enterprises and parent may be down with a slightly higher share count, bonus depreciation related interest savings is at the utility instead of at the parent, and a state tax credit in 2012 that's not repeated in 2013.

We talk a lot about flexibility in our investment plan.

Our 2013 to 2017 five year plan calls for about $7 billion of investment.

And as John showed you earlier, this includes addressing a future capacity shortfall with a new gas plant.

We have offset a good portion of the new plant investment by prioritizing our plans for the next five years with some investments deferred to a later time frame or done with even better technology than we thought possible before.

We've reduced the range from prior discussions at $6.5 billion to $7.3 billion down to a new range of $6.5 billion to $7 billion.

This keeps customer base rate increases under inflation.

Even though we could invest substantially more in the next five years, which would enhance earnings and cash flow growth, we do not.

We do not because we believe it's our responsibility to keep our customer base rate increases below inflation and this makes for a sustainable plan for everyone.

Although retained earnings in our NOL are still sufficient to meet our need to maintain a strong equity level at the utility, we are examining options carefully to make sure they are in the best interest of investors and owners.

For example, we may up size a bit our small continuous equity program to take advantage of the accretive investment in the new gas plant if approved.

However, if we can find enough capital investment offsets we may not even need to do that.

As shown on this slide, we have been catching up on necessary investments over the last few years.

Since the need for investment continues to grow over the next ten years, the pace of our growth may exceed some of our peers.

During the last decade, many peers were able to put important programs in place while we were in a tough period of restructuring.

This catch up provides us with an opportunity to fuel future growth on a consistent basis and for some time.

While we've accomplished a lot reducing our O&M cost in the past, there is still more we can do.

We reduced our head count 3% in 2012 and 10% since 2006.

This is a major contributor to our plan that not only offsets inflation but will reduce cost by a further 6% in 2013.

And that's 8% below inflated levels.

For the period 2013 to 2017, we project O&M costs to be down about 1% a year.

Examples include continuous productivity improvements.

We improved productivity 41% since 2006 and target another 25% over the next five years.

Other examples include moth balling our small coal plants, thoughtful benefit changes and the rollout of smart meters.

These savings flow to our customers and are enabled by our investment programs.

Michigan continues to rebound with many examples of recovery over the last three years.

Housing starts are up 75%.

Auto production in Michigan is up 97% and unemployment is down almost 5 points.

As Michigan economic recovery continues, sales in our service territory have rebounded nicely.

Industrial sales reached pre-recession levels two years ago, and as you can see on the left side of this slide, sales growth has continued at a strong pace.

Recent growth is cloaked a bit by sales in one narrow customer class.

What we call an E1 tariff.

This is a unique economic development tariff that doesn't provide for any margin to our Company in an effort to support solar related sales.

Sales are falling in this narrow class where we make no profit.

For example last year our industrial sales growth of over 2% would have been 4% excluding this E1 tariff.

That builds nicely on prior year growth.

As we look ahead growth would be about 1% including the E1 tariff.

3% without it.

In other words, sales from all of our industrial customers save one are expected to grow 3%.

Sales growth for all customers as shown on the right as continued at about 1% a year.

Also we show growth excluding energy optimization program.

In 2012, we maximized energy efficiency receiving an incentive of $17 million on top of our authorized ROEs.

Your primary focus really should be on growth including energy optimization but we thought it would be useful to see the underlying economic strength in our service area with sales up 2% excluding these energy efficiencies.

As you can see here, electric sales continue to exceed the average growth at EEI companies.

We plan for the future conservatively and the actual results speak well for themselves.

Overall our sales have been up 1% in each of 2011 and 2012 when peers were flat in '11 and down 1% in '12.

While our industrial sales reached pre-recession levels in 2011, the year-over-year effective increases of about 4% compare very favorably with peers where sales were up only 2% in '11 and down 1% in '12.

With budget and tax reforms in place as well as growth oriented fiscal policies, Michigan's GDP growth was the sixth best among all 50 states in 2011.

And this performance continued in 2012.

Planned cash flow for 2013 is strong with operating cash flow at the utility exceeding $1.7 billion.

At the parent, sources of cash easily covered equity infusions into the utility as well as the cost of financing.

The financing plan targeted for 2013 is in good shape.

There are no maturities coming due in 2013.

We will continue to look for opportunities as we always do to prefund our needs for future years.

Gross operating cash flow continues to grow at about $100 million each year as does net operating cash flow which includes interest payments, working capital, and taxes.

As we make use of our NOLs through 2016, a full four years away, we anticipate that we will begin paying some federal taxes in 2016.

While a few years ago our underlying operating cash flow was not as strong as many of our peers, our substantial customer investment program has turned the situation around to a healthy level.

As you can see in the yellow banner at the bottom of the slide, NOLs and tax credits continue to be available through 2017.

Our credit ratings have improved a lot over the last few years.

And we were pleased that Moody's and S&P have our credit ratings outlook on positive and we have faith in their insights and look forward to their results.

As we provide in each earnings call here is a table of profits and cash flow sensitivities to enable you to assess our projections, including changes in sales, gas prices, and ROEs.

The size of the sensitivities provide some reasonable indicators regarding the degree of change that could occur.

Please recall however that it's our goal to deliver planned results for our customers and investors even if these conditions change.

Our best measure of confidence in our future is our earning guidance to you.

Over the last decade we've delivered an average EPS growth of 7% a year, a bit better than our peers.

We believe we can continue growth this year and in the future at 5% to 7%, continuing performance we hope a bit better than our peers.

This underlying goal will facilitate increases in our dividend and perhaps therefore that pace might also be a bit better than some peers.

Here is our final report card for 2012, all targets were met or exceeded.

And here is our metrics for 2013.

They are tough but they are realistic targets that provide for a strong level of performance for both our customers and our investors.

We've included a dividend and a customer rate metric to enhance measuring progress in these important areas.

We've continued the all important earnings cash flow and capital structure metrics.

We look forward to reporting on each of these and other important topics as we go through the year.

So thank you for your interest and your time today.

We appreciate your faith in our Company and in our management team.

We are committed to your success and realize that we have got to earn your confidence every day.

On that note, John and I would be happy to respond to any questions you may have this morning.

Francis, would you please open the call for questions.

Thank you very much Mr. Webb.

(Operator Instructions)

Kevin Cole, Credit Suisse.

Good morning, gentlemen.

Tom, just to make sure I got your comment clear on the equity.

So you're maintaining your no block equity through the planning period but may opportunistically increase your drip from $30 million to $40 million or something small like that?

That's pretty close.

And let me just add a little clarity to that.

You remember our capital investment went up $750 million for the new plant.

That's yet to be approved.

We are assuming that does get approved so we are working at our base capital investment to see what things could push out a little bit or what things could we do smarter and just bring them down a little bit.

To the extent that we can get in the low end of that range that John gave you we probably don't need to make any changes whatsoever.

To the extent that we stay up around $7 billion, or maybe a little bit more, we think we are in pretty good shape.

But what we would look at is maybe take the continuous equity program up a notch and we haven't decided to do that.

Let me remind you what those numbers are.

We have a drip program that's about $15 million a year and a continuous equity program that's $15 million for that total of $30 million, Kevin, that you mentioned.

So our goal is to try to stay in that arena.

But we realize this is a pretty accretive investment that we are doing and we might want to tip it up just a little bit if we need to cover that new higher level of investment.

You can see our primary emphasis is to figure out how can we do it without putting people in a situation where we have the potential for dilution.

We don't want to dilute anything here.

So thanks for the question.

We haven't made our final decisions on that but as of today I would tell you there is no plan for any new block equity issuances, the NOLs are good enough along with our routine earnings to put us in good shape.

But we will be evaluating just how far we can go in that capital investment as to whether we need just a tiny bit more of equity maybe through our continued equity program.

Okay?

Great.

Thank you.

One last question if I could.

So I guess on the capital investment tracker, I guess given that ALJs recent testimony stating that the Commission lacks the legal authority to grant such a tracker, what is your updated view on the issue?

And generally do you know what the root of the ALJs issues really are given that it seems to me that the Commission was clearly -- their authority was clearly affirmed by the court of appeals early last year and -- I mean, this tracking mechanism is good for all stake holders.

Right, we are probably mixing a making a couple of things in there.

I would just make it clear that let's use the decoupling appeals court order.

The judge in that situation said that by the letter of the law the word electric was not mentioned in the 2008 energy law.

Even though we continue gas decoupling he did not see the authorization for electric coupling.

When he came out and said that, he said but the Commission does have full authority to do things like trackers.

It can do -- it can get the effect, if it chooses, of decoupling in different ways.

There have been lots of comments and things around this whole subject.

But I would tell you it's our understanding that trackers in different words or forms are permitted for the Public Service Commission to do.

So we don't see any barriers to that in decisions they will be making in the future about our electric and gas rate cases when it comes to having the revenue mechanisms we proposed or the capital investment mechanisms that we've proposed.

They can put forms of trackers on that if they so choose but those decisions are yet ahead for them.

Kevin, the only thing I would add to that is I think you are referring maybe to the ALJ case and the MichCon case.

Yes, exactly.

They look for and right now I think you know the staff is supportive of the tracker.

The issue there is that I think and you will have to verify with DTE is that the DTE gas business in that case was requesting a five year duration.

And I think that's what caused some angst on the ALJ.

The staff was supportive of it.

In our case we are not looking for that duration.

We were looking for a shorter duration, one year.

Okay, so the staff testimony comes out Thursday.

Is that correct?

It does today.

Yes.

Today is Thursday.

Great.

Thank you.

Just to bring you right up to speed.

Thank you, guys.

Thanks, Kevin.

Paul Ridzon, KeyBanc.

Good morning.

Two questions.

Can you give some more color as to what's going to drive the 6% cost reduction?

How much of that is related to the accelerated spending you did last year?

And the second question is, any latest thoughts on the strategic value of EnerBank?

Yes, I will take those.

First on the cost side.

That's the bigger and more important question I think of the two.

And I would tell you, yes.

This last year -- first of all to get directly to your point, we had programmed to take our costs down 6%.

We didn't go all the way because we were able in the fourth quarter make some investments for customer reliability that we wouldn't otherwise be able to make when we had the very warm summer.

So of course the net effect of making those investments in our business reduced the size of the year-to-year cost reductions which were still substantial and maybe one among the best in the sector.

But this year that made it a little bit easier than in '13 with those costs in place to not repeat those and be able to lower our cost even farther.

But I would tell you take a look at our slide 22 because we give you what I will call is a handful of examples of what we've done.

And a handful of examples of what we are doing for the future and there are many more beyond this.

So on that slide we remind you that we will be moth balling our small coal plants.

That will save some money.

Our productivity commitment for the next five years is another 25%.

That will save money.

Each and every year.

Our benefit plans, we have some smart things to do in part with partly what the federal government is doing.

Where we will be able to take some advantages to do our benefit programs more efficiently and economically than we do today and you will see some of that this year.

The smart energy program at Consumers, that's one that I think everybody is familiar with.

Not needing meter readers and so on and so on.

We are really just rolling that out.

We're a bit of a laggard.

We were behind other companies, but by design, so that we could benefit from the latest technologies and the smartest things to do around security and the like.

And so as that rolls out we will only start to see some of those benefits coming in.

There is a lot of things we can do.

We have a good deal of confidence in where we are for reducing our costs by 6%.

And you will notice that we give you an estimate for the next five years which we think we can do at about on average 1% a year.

As we get closer to each of those years, we will look at them a lot harder and that's when we will see can we do a bit more.

Sure, those cost reductions help us a little bit on our earnings when they are done.

But that's temporary.

We pass that right through to our customers because we make our money on the investments we are making which help many of those enable these cost reductions.

So from a cost reduction story, yes, we've got a little bit of a helping hand this year with some monies that we put in place last year, but we have got a good plan with specific actions on how to get there.

On the EnerBank, it's a small part of our business.

It has grown nicely, they have done a good job there.

They, along with enterprise, make up about $0.11 of our earnings per share last year.

I would tell you that we would like to see the enterprise side grow a bit more.

It's $0.05 of that number and this isn't a great market to have IPPs.

It's one that we are doing okay in and we see some upside there.

So we see some nice growth opportunity.

We are proud of EnerBank but it's a small piece of our business that strategically we need to keep in place at least for now.

Okay, thank you.

Thank you.

Jonathan Arnold, Deutsche Banc.

Good morning guys, I think my questions have just been answered.

So, thank you.

Thank you.

Thank you for dialing in, Jonathan.

Ali Agha, SunTrust.

Good morning.

Tom and John, the CapEx number that you are budgeting over the next five years, $6.5 billion to $7 billion, can you remind us of what underlying annual rate base growth that will support for you guys?

Yes, I think the way you should look at that it's roughly in the 5% to 7% zone because that is the driving factor then of course for the earnings and the operating cash flow growth.

It's about in that arena.

Okay.

So the point being --

It's different, Ali, from year-to-year as you would expect because it's not a perfect straight line.

So where we might be around $1.4 billion this year and maybe similar the next year, you might see it come down a little bit for a year and then back up.

The curved line that we gave you in our slides today was to give you a general trend, a smooth trend of that investment in the past and into the future.

And given the fact that the gas plant is now in the equation, is it fair to say that it's more heavily skewed electric versus gas proportionately?

For sure.

Is it.

But I would also tell you that probably jumped, John didn't mean to here.

Go ahead.

When we look that the, even though it's skewed more into the electric than it is to gas we are looking for opportunities every day to put more money in the gas side of the business because there are good things that need to be done and with gas pricing having come down so much there is room for our customers to be able to absorb that smart investment.

Suffice it to say though, we are critiquing everything on the electric side but we're not putting anything on the gas side that doesn't make absolute good sense for our customers.

And, John, you know, recent commentary coming out from the Michigan legislature regarding a closer look at both self implementation and retail open access as well, give us your context or give us a sense of where those two issues are and how you see that play out.

As I mentioned earlier, Ali, you have got the governor that's come out and said that the law -- we like the law.

He likes the law.

The folks in the legislature, we've seen one bill that's been introduced in the senate which was a bill to open up the cap which was similar to the bill that was introduced last year and no action was taken on it.

There has not been any bill as I know of as of today that's been introduced in the house.

The house -- the senate has gone through hearings on changing the law.

Senator, who runs the Senate Energy Committee is supportive of the law and I think eight of the nine or seven of the nine committee members he has which are bipartisan have been supportive of the law and voted for it in 2008.

If there is work to be done it's the work that I talked about this year with what the Chairman of the Commission is doing coupled with the Michigan Economic Development Corporation to go out and seek opinions and thoughts about this in these public forums that are being conducted over the next several months.

In addition to that and the point I want to make very clear is they also been very thoughtful about constructing a list of 80 questions that are going out to all parties for responses back in the April time frame, April/May time frame what they are trying to do is collect data.

Not opinions necessarily, but also data driven approaches about regulatory renewable energy, energy efficiency, what works, what hasn't worked.

What's the data behind it, and that's exactly what they are trying to do.

We will be actively involved in those.

I expect there will be some hearings I will be involved with as we go forward on this.

The point is they are looking at it.

We've always thought that a natural time to look at the 2008 law would be in 2015.

And that's what the governor really directed in his energy message because there are some natural fall offs that occur in 2015.

Do we keep doing energy optimization at the levels we have today?

Do we keep the surcharge the same?

Do we expand renewable energy from what it is today.

That's kind of a natural process that we go through right now.

Got it.

Last quick question, Tom.

Fair to say that in your '13 guidance you resume the rate case outcome similar to what you got last time?

I would say it this way, we've asked for what we needed.

And we wouldn't want to be talking about other numbers in the middle of that process.

Understood.

Fair enough.

Thank you.

Andrew Weisel, Macquarie Capital.

Thanks and good morning, everybody.

First question I want to elaborate on the O&Ms, the 6% reduction for this year, if I remember correctly that does not include the energy optimization spending, so can you remind us what that dollar amount will be and kind of what the appropriate base to apply that 6% is?

Just trying to get a better sense what the actual dollar O&M will look like in 2013.

Yes, we will look up the EO number now.

I don't actually have it at my finger tip.

Okay.

I will ask some other ones in the meantime.

From the sales recovery slide --

Go for it, man.

From the sales recovery slide it looks like the actual revenue number will be kind of flattish year-over-year.

First question is I just want to affirm that is weather adjusted.

The week the actual number will look a little different than zero?

Yes.

That's true.

This is John, Tom is working on your number.

Yes, think of the sales for 2013, basically flat overall and then if you add back the energy optimization, that's about a 1%, and then E1 that Tom talked about is about another 1%.

Right.

In that range, that's what you should be looking at from that standpoint.

And then here is your answer from energy optimization.

First of all, you are right assuming as we told you before we don't put that into the cost levels for which we then count our 6% reduction.

That number is about $116.1 million.

And it's the same number in '12 and '13.

Very tiny difference.

So you won't see that as a differential for '12 to '13.

Does that help you?

Yes, it does.

Thank you.

Even as you go forward, you would see that in '14 it's a similar number but you may recall if you went back a year to '11 we were still ramping up.

So it was a little bit smaller number.

Okay.

Great.

Very helpful.

Andrew, those are weather adjusted numbers that I gave you.

Right.

Okay.

Great.

Then longer term when we think about the sales growth in '14 and beyond should we think of it as kind of the same range of flattish growth after E1 and the EO?

I think the way, again, weather adjusted and -- just straight up, about 0.5% to 1% is what you should look for in growth over the longer term.

And no one can really precisely say like we do in our books that's it's point X. It's really about 0.5% to 1%.

Then if you took EO out of that, add back about 1%.

Think of, if I round the number to 1% growth, then you would be up to about 2% growth without EO.

Great.

Very helpful.

Then one last one.

Just the timing of the rate case for gas, I guess I was little bit surprised on the timing.

Given that you have the electric case outstanding with a few unknowns as far as like the recovery mechanism and the decoupling or whatever flavor name they give it, and given that in April we will find out about DTEs infrastructure recovery mechanism, just a little curious on why the timing now as opposed to waiting until we have a bit more clarity from those other two data points.

For us it's real simple.

We kind of put blinders on like a little horse that's just got oats in front of him and we just look at the investment that we are making and determine what's the right time to go back to the Commission.

And that has been something approximately in annual rate cases.

The rate cases have all been about that investment.

We try not to be distracted for variety of reasons that might happen that would cause you to go a little faster, a little slower.

Do we think about those?

Yes.

Do we think about rates in winter seasons?

Yes.

Do we do all of that?

Ours is plowing down a course that's steady, routine, regular cases.

Now I do want to add because I know you picked it up but to make sure everybody else does.

We put some mechanisms in both the electric and gas cases that could permit us, if they are granted, around capital spending for instance recovery in the future years for at least a year or year and a half out depending if it's electric or gas case.

That could permit us not to have to come in for a regular rate case.

Since our requests are all capital spending if we had some form of a tracker that went out for say two years then we could stay out of rate cases for that period, and if we did one a little longer probably stay out that little bit longer, too.

That's one we are not presumptuous as thinking that it's our decision.

We will see what the Commission chooses to do with that as to how they would like to pace this recovery.

Thanks a lot.

Thank you.

Thank you.

Brian Russo, Ladenburg Thomas.

Good morning.

Most of my questions have been asked and answered.

I was just curious if you get approval for the new gas plant when would construction begin?

We'd start -- two things we need, Brian.

We need the air permit and then we'd need the certificate of need so we would start construction around '15 and be operational by the summer right now of '17 is what we are planning.

Okay, so if there is any valuation of the continuous equity program and et cetera, would it be timed with when the gas plant construction starts?

Or would you look to do something sooner than that?

We were going to, again we don't like to get out in front of people and their decisions.

We are going to make certain that we have an air permit and a Commission that believes we deserve a certificate of need and that's when we will start making the decisions about what we would do.

That's related to the gas plant.

I think you see that out in the future a bit.

We will be looking at our total capital programs and what we need to do each day.

But for the -- this one, we want to get the decision so that we know we can talk to you about facts rather than just desires

Okay.

And then just your thoughts on the trend in your NOL balance.

It looks like it winds down through '17 and a less tax shield on your cash flows and just your thoughts on your external kind of capital needs to fund kind of the latter half of that five year capital budget.

Yes.

The NOLs are good counting this year through the next four years, but here is the thing that could change that.

If we had another big bonus depreciation year, which we don't anticipate, but if that were to happen again this next year coming up, you know how that works.

That gives us the tax shelter where the investments are made down at the utility and then that allows us to take our NOLs and extend them out, use them later, they have long lives as they exist today.

But we would be able to take out the time with which they are used up and therefore take out the time in which we would need to generate more cash through equity or something like that.

So we updated this since we talked last third quarter earnings call.

We've put some new things in with some programs that help us on some tax shelters and the bonus depreciation.

And we are clean through 2016.

Now we do tell you we have credits that go further than that.

But those have to be looked at each and every year when you do your tax returns.

Those are not always, all usable right away.

Some of those may get used later in time.

So the way to think about this, good NOL coverage through 2016 and then we will work hard to see if we can't do some other things.

Okay.

Great.

Thanks a lot.

Paul Patterson, Glenrock Associates.

Good morning.

I wanted to touch base with you on the weather adjusted sales growth that you experienced in 2012 for gas.

If we back out transportation, it looks like it was substantially down and pretty much a cost cut for classes.

First of all, on industrial, was there any fuel switching?

And if there was what would have caused that?

And otherwise how do you -- what do you think is actually driving such a decrease in demand?

Paul, let me talk about that.

One of the things that we had remarkably warm winter last year.

So when you look at the weather adjustment models we use, I don't think they really have experienced a whole lot around that area.

Because it was what I would call almost record setting as far as warm weather.

I don't see that as a indicator -- I wish we had better models but when you get into that territory, as Tom said, that we were losing $8 million, $9 million, to $11 million in the winter, or cents it was a big issue.

As far as fuel switching, limited, the biggest thing we are doing in fuel switching in our territory is that we've got propane customers, about 400,000 propane customers that we can switch to natural gas.

And we've got an aggressive program that we are working on that today.

But that requires pipes to be installed to be able to access those customers.

When you think about compared maybe to the east coast and others that maybe you are thinking about.

We don't have as much of that fuel switching as they do, but it's an opportunity for us to grow and be able to capitalize on the switch from propane to natural gas, which for our customers is about a two year pay back after they pay for the installation and all new appliances.

It's something we think has potential in the gas business.

Okay.

Just industrial in general, would there be that big a weather impact on industrial for gas?

I don't know.

It's relatively small when you look at it, I guess it's down substantially.

Most of our industrial customers, when you look at the base there, are large customers that take transport.

So the mix that we focus on in our business is really the residential and the commercial.

Because that's where the margin is.

Most of the large customers are just paying us a through put charge because most of them are on transportation rates and/or buying from third parties.

Okay.

You might be surprised in the gas business that there actually is more weather related than you might think on industrial.

People are heating green houses which are their big thing up in Michigan.

People are heating large buildings where they do pharmaceutical testing.

So there is more of that than you might think.

That's what I learned over time.

Okay.

That's helpful to know.

And just on back to the electric side, why is E1 going down and how should we think about this in general just general -- I realize you don't make money from that but to get a sense here, I mean, there was almost no growth at all in residential and commercial.

And I assume that actually includes leap year.

So, I mean, I am trying to get a sense as to really when you are mentioning 0.5% to 1% growth, we've seen a big boost here in industrial and a rebound in the economy.

But just where do you see that growth coming from?

Let me first help you on residential and commercial.

We completely agree that's a slow process in terms of the recovery.

Industrial comes first when you are shooting down or up.

Either way.

That's the way it happens in an economy.

We are seeing the residential come back up.

Remember, residential which we show as sort of flat year-to-year.

When you take out the energy efficiency work it's actually up 1%.

So you are beginning to see residential usage come back around.

Commercial is following and I'm just going to tell you, commercial is flat.

There are people are still concerned about the economic conditions of the country and even the globe I guess when it gets down to that so they are being very cautious on their recovery.

What is encouraging is the industrial side where industrial customers as a whole, we're back to pre-recession levels two years ago with great growth on top of that.

Here we see our industrial customers excluding this E1 tariff up another -- over 3.5%, almost 4%.

Again, this year and we see that as really good encouraging progress with lots of evidence when we talk to our customers individually about what they are doing and they see.

We get some comfort.

They have worries like everybody does in what's happening in Washington, for example.

But they are growing their businesses nicely.

On the E1 tariff we are actually not permitted by contract to talk very much about the details that are in that, but I would ask you to accept this if you don't mind, is it was a tariff put in place to help start up some sales and boost a particular sector.

We did mention around the solar side of the business with whatever things are happening worldwide and across the United States they are struggling right now and as they fall away sharply that does cloak the overall growth that's happening for all of our customers absent that one tariff.

So we thought, and we don't like to call out any particular tariff or any particular customer.

We are very loyal to all of them in helping them be successful.

But in this case we thought you needed to know that our growth at 2% would have been 3.5% without that.

Okay.

And then just finally, I'm sorry to be so slow on the O&M, but when you mentioned 6% decrease, I guess, adjusted -- relative to inflation I guess is what we are talking about.

No, this is absolute number and that's something we're very proud of.

A lot of folks will tell you on phone calls numbers versus inflation.

If you assumed we would have a 2% inflation this year, our numbers will be down 8%.

So no adjustments.

Nothing.

Dollar to dollar, we are down 6% or will be.

That's our plan for this year.

When you give the 1% for 2013 through 2017, is that inclusive of the 6% or, because that obviously is a huge number.

Yes.

In other words, when we think about you guys after this year, how should we think about, do you follow what I'm saying?

Yes, the way to look at it, the way we run our business here is we build like a five year plan where we try to put in some tough objectives.

But we don't put things in our plan that we don't know how to do.

When you are out four and five years it's a little more difficult to program exactly what all the O&M will be.

We put in the things we know and we say we have got to for our customers at least keep our numbers flat.

As we get close to each year we look what we can do that would be even better.

As my guess is, and we don't have any such numbers right now, as we get close to 2014 we will start to talk about what we can do to bring those numbers down because we will have real plans as we get closer to that year.

So facts are 6% this year, flat beyond this year.

But because when you work in the 6% that would be about a 1% decline as you observed.

And we will look for ways to bring those numbers down as we get close to each and every year.

Thank you for the clarification, guys.

Thanks a lot.

Appreciate the question.

Thank you.

Gentlemen, at this time there are no other questions in the queue.

All right.

Let me wrap up today.

Just by saying that we've had a good year of financial and operating performance in 2012.

Thanks to the employees at CMS Energy and Consumers Energy.

They are responsible for this and we appreciate the work that they have done to help us get to where we are today.

We are also well positioned, you heard today to deliver another year of consistent financial performance in 2013.

We appreciate your interest in CMS Energy and look forward to seeing you at up coming conferences.

Thank you for joining us on the call today.

Ladies and gentlemen, this concludes today's conference, we thank everyone for your participation.

Good day.