CMS能源 (CMS) 2013 Q1 法說會逐字稿

Good morning, everyone and welcome to the CMS Energy first-quarter 2013 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 May 2. 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.

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.

This presentation contains forward-looking statements.

These statements are subject to the 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 the 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.

CMS Energy provides financial results on both a reported Generally Accepted Accounting Principles and adjusted or non-GAAP basis.

Management uses 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.

Thanks for joining us on our first-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 2013.

Then, as usual, we will close with questions and answers.

We are off to a good start in 2013.

For the first quarter, adjusted earnings-per-share was $0.53.

This is up $0.16 from last year primarily due to more normal winter weather as compared to one of the warmest winters on record a year ago.

First-quarter results keep us on track to meet our full-year guidance of $1.63 to $1.66 a share.

We have identified a number of near-term catalysts that we believe provide the foundation to achieve our long-term goals.

Tom and I will provide you an update on each of these during today's call.

This slide shows a list of eight catalysts that will have an effect on our future performance.

You have probably heard us talk about them over the past few months.

As we look at the list, good progress has already been made.

In fact, a couple have been completed while others provide us opportunities ahead.

The first catalyst is the 2008 Energy Law and the effect it has had on Michigan regulation.

The 2008 Energy Law is working as designed.

The latest example is our recent electric self-implementation filing.

For the first time since the law was passed there was no opposition and no order to our self implementation -- a significant milestone and another constructive development.

But despite how well the law is working, there are a few special interest groups that would like to change parts of the law.

Last November, the Governor gave a report on energy and the environment.

Included in the report was Appendix A, titled readying Michigan to make good energy decisions.

The Appendix calls for 2013 to be the year of study on energy issues.

The Governor outlined a measured approach of data gathering that will help policymakers make good energy decisions for Michigan's future based on facts rather than sound bites.

Seven public forums have been held across the state to gather information on renewable energy, energy optimization, electric retail open access, and other energy-related topics.

The Michigan Public Service Commission Chairman and the Michigan Economic Development Corporation Energy Office Director are leading this effort.

They will submit a report to the Governor who is expected to give his recommendation by the end of the year.

We expect that the Legislature and Governor will be looking at changes to the law in the 2014 and 2015 timeframe, after certain provisions of the current law sunset.

We will keep you updated on the progress throughout the year.

The second catalyst is our rate cases.

In March we self-implemented a $110 million electric rate increase.

As we have mentioned before, our electric and gas rate cases are primarily for capital investment needed to provide safe, reliable service to our customers and to meet mandatory state and federal requirements.

We will continue to file routine and regular cases for timely recovery of these investments, which keep average base rate increases below the rate of inflation.

We have been a leader in the industry in O&M cost control.

Converting all of our coal plants to burn Western coal has generated substantial savings for our customers.

Restructuring the workforce and labor agreements are two more examples that have helped us reduce legacy costs.

And as we look forward, there is more that we can do.

We are always looking for ways to improve reliability and affordability for customers.

A strong customer focus is important to the sustainability of our business model.

During the first quarter, we announced plans to reduce natural gas fuel costs by 15% over the next 12 months.

This will result in a total bundled gas rate which includes the commodity and the distribution charge being reduced by 7% this year and by 2% on average over the next five years.

This creates headroom and opportunities to invest in our gas infrastructure business to deliver safe and reliable service.

The third catalyst is our capital investment plan.

You can see on the map where we are planning on making our investments.

Environmental compliance, the new gas plants, gas infrastructure, and upgrades to the Ludington Pumped Storage Plant are some of the major projects planned within the next five years.

We have lowered the top end of our investment plan over the next five years to $7 billion from the $7.3 billion you can see on the chart.

Looking out over the next five years, we have a solid plan to invest another $8 billion in needed projects that will improve our electric and gas systems.

Our investment program continues to drive reliability, safety, and customer value as well as grow earnings and cash flows over the long term.

Catalyst number four is the filing of the Certificate of Necessity, often referred to as the CON, for our proposed new gas plant.

Late last year, we submitted an air permit.

This summer we will file the CON with the MPSE.

The purpose of the CON is to demonstrate the need for a new generation and to support our decision that a natural gas plant is the most efficient choice.

It also will secure cost recovery.

This new plant will be built on a site we already own.

The location is ideal with full gas supply and electric transmission already on-site.

The plant will include the latest technology to run as an efficient baseload unit with an optimal heat rate.

And it is timed right.

The plant will be operational soon after our small coal plants are taken out of service.

Now let me turn the call over to Tom to talk to you more about our first-quarter results and the outlook for the rest of the year.

Thanks, John.

The investments that John described deliver vital services for our customers and continued growth for you, our investors.

For the first quarter our earnings were $0.53 a share on a reported and an adjusted basis.

This is $0.16 better than last year, colder-than-normal weather provided a boost of $0.03 this year, which was much better than the mild winter experienced last year.

With self-implementation of our new electric rate case on March 19, our earnings run rate is comfortably in that 5% to 7% growth range.

Actual and projected costs are as planned, while recent sales are stronger than planned and promising, we continue to plan conservatively to stay realistic and maintain a solid focus on customer service and investor results.

We are maintaining our guidance at $1.63 to $1.66 a share.

Now as is our past practice, we intend to reinvest stronger than planned financial performance in customer reliability improvements.

Now please recall our work that we did last year when we offset fully the adverse implications of an unusually mild winter weather.

Otherwise this would have reduced 2012 earnings by $0.13 a share.

Later in the year we benefited from a hotter than normal summer and we put this upside to use by investing substantially more in tree trimming, generating plant maintenance and system hardening.

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

None of this jeopardized delivering another strong year of earnings growth up 7% from the prior year.

Now with all of that in mind, it is good to have a fast start this year and in April we continue to experience more upside enhancing the fast start by another $0.02 or $0.03.

We already are putting some of this favorable performance to work with incremental improvements to customer reliability.

Some of the reinvestment is in our plans for later in the year and we will monitor conditions to see how the summer shapes up before acting.

The post-recession recovery has been strong for our industrial customers and, overall, we call the recovery good but not great, but perhaps just a little better than our surrounding states.

This chart shows our year-to-year change in electric weather normalized sales.

The green bars show us, the gray bars are the average of US utilities.

The recession hit us a bit harder, but our recovery has been a bit better than most.

GDP in our service territory was better than 90% of all states or among the top 10% in both 2011 and 2012.

Industrial sales growth offset recession losses in 2010, building nicely since then.

Residential and commercial growth has been modest.

Excluding sales from one company that is on a no margin economic development tariff, we anticipate industrial growth at about 1% this year and that is on top of a good 4% last year.

We project total sales to grow less than 1% this year on top of 1% last year.

Excluding energy optimization, underlying economic growth was 2% last year and we expect that it will be about 1.5% this year.

Now this of course is even higher or about a 2% growth, if you consider the impact of leap year in 2012.

The shift from propane to natural gas continues to enhance new gas customer hookups, almost doubling new customer hookups last year.

We expect to add 1/3 to the level of new hookups this year.

This provides substantial savings to customers and should add about 70,000 new customers to our network overall.

While many of our near-term catalysts that we are talking about today are in the future, we are pleased to report credit rating upgrades for CMS and for consumers by both S&P and Moody's.

The utility rating is a notch stronger and the parent now has an investment grade rating for the first time.

I know for some of you this has been an overhang, so it is especially pleasing to eliminate this disadvantage.

We plan to continue our strong level of liquidity with $1.2 billion in five-year revolvers supporting $2 billion of liquidity overall.

We maintain a liquidity level about twice the thickness of our peers, continuing to maintain our conservative approach to the business.

Just last month we pre-funded $250 million of parent debt maturities with a 30-year debt.

That is another first for the parent.

We also completed our 2013 continuous equity program.

Parent cash flow is strong and utility operating cash flow is at its best level ever.

This reflects our healthy customer-oriented capital investment program.

We have completed planned parent financings for 2013 and we expect to wrap up the utility needs soon.

As always, here's our earnings and cash flow sensitivity chart.

So far, sales and gas prices are on the high side.

Our ability to apply NOLs and tax credits continues to help us avoid the need for new block equity and associated dilution.

This is an enviable position.

So we are on track to meet all of our financial targets for 2013 and, fortunately, with some room to move.

If successful, this will be our 11th year in a row with a continued on-plan track record of growth at a premium to our peers.

Thank you for your attention on what we know is a very busy day of earnings calls.

We appreciate and we value your interest and support.

We would be happy to take your call, so, Kathy, would you please open the call for us?

(Operator Instructions).

Mark Barnett, Morningstar.

Good morning.

Quick question.

You mentioned as your first time with the self-implementation that went totally smoothly.

Could you possibly discuss some of the -- not the actual growth level of the increase, but some of the rate mechanisms that you had proposed along with the filing and maybe what kind of feedback you have had so far even though it has been only about a month and a half?

Yes, Mark, a couple of things.

The reason we comment things going pretty smoothly is as you know when we do a self-implementation in the past, it has got a little bit of debate or discussion in terms of the level and the way we go.

The Commission has been very helpful and in fact, in this particular process, they chose not to really have any comment.

In other words saying that you can choose to self-implement the level you want as long as it is not higher than your request and it is responsible.

And two, they chose to use the default mechanism in the law that provides for essentially peanut buttering these rates across all of the customers because typically what they might do is ask for a little reshaping of that in one fashion or another.

So that is in part what we call as very smooth.

A second part of a three-part answer here is that for the first time on an electric rate case, they actually built in a schedule and did some work to look at the possibility of settling a case.

Now that is very unusual.

And electric cases are big and complex and gas cases are small, a little bit more routine, and those get settled.

But for an electric rate case, that would be very unusual if that happened.

But that is still in the scheduling process.

And then, third, if I can comment overall, we have asked for a mechanism that essentially takes the capital investment that we make and permits that to be tracked in just common words, if I may use it that way.

So we called it an adjustment mechanism.

That is not something that we are counting on.

We are counting on our routine approach to rate cases, but it is something that many parties have been interested in.

So we have included that in our request as a mechanism that might allow us to avoid the need for these annual rate cases if the Commission were to choose to include that in its order.

Now I would like you to know as everybody that we have always viewed that as something that is less than a 50-50 probability, so it is an upside if it were to get approved and we will just have to see how that goes.

There has been a couple of other rate cases that are unrelated recently that in one fashion or another have include some form of a tracking mechanism around some capital investment.

But this would be pretty new doing it like we do a PFCR, or even a GCR, but for all the capital.

So that is an item of interesting discussion, but I would call it no more than that because it is a request that we are trying to get good debate on and see if there is a possibility for consensus.

So thank you.

If I could, just one more quick question on the -- on your usage numbers.

You know you -- pretty fairly conservative forecast.

I was wondering about in the quarter, your weather normalized on the residential side you saw a little bit of a dip.

Was there anything in particular driving that?

Just anything you saw that you obviously still have a slight improvement forecast for the year; wondering about how that fits into your expectations.

Yes.

In fact, the way to think about that, when you look at the residential weather-adjusted side, you will see that for the quarter it is down as you were observing, 0.8%.

Then you'll see commercial up 1.5% and you will see our overall industrial with that one adjustment that I talked about being positive too.

On the residential side, I hate to use excuses, but I would remind you that it was a leap year last year and it wasn't this year and the leap year impact overall is worth a full point having that lost day.

So inside the quarter there is a little bit of that and some other things going on.

But here is what I would offer to you for the outlook for the year.

Think of residential and commercial as positive, but still modest growth.

It is on the industrial side we have seen a really good rebound.

And as you know, that will actually feed the residential side later and it will feed the commercial side to some point later as well.

So the fact that we are seeing a good rebound on the industrial side is what we are watching with a lot of care and then we think as people get more confidence and more businesses expand in Michigan the way they are doing today, that eventually will bring along more hookups on the residential side.

I hope that helps.

Yes.

Thanks very much.

Andrew Weisel, Macquarie Capital.

Good morning.

If you could just elaborate on that last point a little bit more.

When I look -- compared to the full-year forecast for usage it looks like it has come down.

It was 1% total.

Now it is 0.5%.

And industrial was plus 3%, now it is plus 1%.

Can you just talk is that something that you saw in the first quarter trailing your expectations?

Is it more of a forecast of lowering the bar going forward.

And then maybe talk about usage per account versus customer growth?

Yes I would tell you that we are seeing -- we saw a little bit of softening in the fourth quarter and first quarter, particularly as it may impact the residential side.

And we would sound smarter than we are if I told you that we knew the exact answers on this.

But I would say there is some concern on the confidence of individuals and, therefore, moving out from shared homes and things like that may not be happening as quickly as we thought.

And I would say that probably the withholding tax had an impact on people's confidence and I think you are now seeing that in a lot of the records, the Michigan Consumer Confidence Index and that sort of thing.

So what we are doing is reflecting what we see as a little slowdown and projecting that out through the rest of the year.

You know us pretty well by now.

We do not like to get out there with optimistic assumptions and then find they are the cause of not being able to do what we need to do for our customers or what we need to deliver for you on financial performance.

So we would rather project a little conservatively so the mixture of real news we have seen and our desire not to get ahead of ourselves on the recovery and the residential and commercial side has us being a little cautious with the numbers that we are providing.

The usage per household, I would say that the trend has been pretty strong in terms of up, up, up over the years save the fact that we have spent a lot of work on energy optimization.

And that is why I don't like ever to sound like an excuse, but I do think it is important for you as investors to see the underlying economic growth and with the energy optimization in and excluded.

It is worth about a point to us.

And a lot of that is on the residential side.

So let me help you.

I think you could add a little more than a point to our residential year-to-year growth if you were to look underneath the energy optimization.

And you can do that the same on the total sales which may help you a little bit.

Because we follow that to make sure we are understanding the health of our customers and the pulse of the economy, but you should in the end track the bottom line numbers, of course, that include the energy optimization.

Because as you know, those are good programs that we are behind solidly and they actually help our customers in their usage and they still permit us to get an incentive in terms of a little extra earnings beyond our authorized ROE as a way to help us promote these things.

Does that get to your question?

Yes that is very helpful And then one more.

Appreciate the introduction of this target for propane to gas switching.

Can you just elaborate maybe a little bit pace of the switching, any thoughts on political or regulatory support for a plan like this maybe compared to what we have seen in New England?

And then lastly, how we should think about the economics and the earning -- the operating earnings impact per customer.

Well, you get a good sense of the pace if you look at our slide 16 called Customer Value and that is the propane to gas switching.

You can see the number of hookups that we had last year about 1,345.

What we expect this year, but we haven't finished it, about 3,000 and then what you see going into the future.

The economics are very strong.

They are what drives this.

Propane is just gone -- it is disconnected with the price of natural gas and it looks like it is more of a permanent feature, this disconnection.

So there's a lot of people that would like to economically benefit.

But I will tell you, on the electric side of the business when we hook up new customers that the connection part to the general area is socialized.

That's not true on the gas side.

So we have our regulators looking at that.

In fact, encouraging us in regards to finding ways that we could socialize that cost and not have such a big impact on one customer as you are trying to take your service into a neighborhood or a business region.

So that will help this economics a lot, but clearly it is a safer place to be with natural gas.

It is now clearly economically more attractive.

We think we are going get encouragement and support from our regulators to help push this along and, therefore, what we are providing to you here in terms of the number of counts, we think, is pretty reasonable.

It could grow a little bit more than that with the support that I have just been describing.

But, again, we do want to get too excited.

This is not, in my mind, the New England story where you are going from oil to natural gas.

That is bigger economics, bigger customer counts.

For us, it is very important.

It is a big deal in Michigan, but not to the scale that you have seen in terms of the growth that they have.

This -- the organic growth that we have got, this will supplement and puts us in a pretty good place.

So we are real pleased with it, but careful on the scale when you are looking at what is happening in New England.

That's good context.

Just on the economics though I was referring to the economics to you, how -- what would be the earnings impact for your Company, not for the customer.

I apologize, very good question.

Just think of the capital investment involved.

If I -- let me just give you a ballpark.

If you look at the number of hookups we have described you could be talking in the neighborhood of $150 million, $160 million and then as that comes into the rate base, just take our 10.3% return against that and you can see the kind of impact that it can have on the Company and still provide an attractive payback to our customers.

Great.

Thanks a lot.

Yeah, you bet.

Thanks for calling in.

Paul Patterson, Glenrock Associates.

Just to follow up, the change -- just to make sure I understand this, the change in the forecast for sales growth is because of customer behavior driven by less than robust previously -- previous expectations as to how they would be responding to the economy at this point in time.

Is that the way to think about it?

Yes.

And then layer on a little bit of our conservatism.

I don't want to overstate that, but you know us, we've lived through the hard times a decade ago, we are never going to get bold and optimistic about our planning assumptions.

Okay, but I meant but you guys are pretty conser -- you're -- you haven't gotten more conservative than you had six months ago, right?

No, no.

So it is, basically, it's the real driver should be basically because of this change in behavior that you hadn't expected, is that --?

That's right.

That is exactly right.

So we are seeing pretty good upticks on industrial.

Slows a little bit because you are building on year-to-year comps that are pretty high to start with, right, through the recovery.

But on the residential and economic, on the commercial side, we are seeing the green shoots as people like to call it and describe it, but we are still cautious that that side is going to follow and is not robust yet.

I'd watch a lot of other locations around the country and they are seeing sort of similar situations and then quarter to quarter varies a little bit.

But I think it is almost a national issue that we are facing in terms of that side of the recovery.

Sure, now you also mentioned that there was, I believe, that you -- just make sure I understood this, 1%, you guys would have 1% higher sales growth if it wasn't for utility energy optimization or energy efficiency programs, did I understand that correct?

You understood that exactly correct and that 1% is about the same number if you were to look at the residential side because -- as you look at the classes, but overall we have about 1% more growth.

So if we tell you we will be about 0.5% before that we would be at 1.5% if you excluded the energy optimization.

These are only your efforts, not what might be happening, those people's individual initiative?

Oh, no, that is right, but sometimes that is hard to break out the two.

If somebody is screwing a new lightbulb in and we can take credit for that, we would like to.

Okay, I got you.

Now, just finally, and I apologize, there was a discussion at the beginning of the call and of course got a little distracted here with things going on about legislative and just policy initiatives in the state.

And I obviously don't want you to repeat what you guys said there, but just any specifics or bottom-line take away that we should be thinking about in terms of what those policy initiatives will drive in terms of the opportunities specifically?

Just quickly, I don't want you to obviously rehash what you just said, but you know what I am saying, just sort of like bottom-line takeaway.

How should we think about that?

Yes, I think the key, this is John.

The key is that I would look at 2013.

I'd mention it is a year of fact gathering and you have got a data-driven administration, a data-driven commission and what they are trying to do is find out what is the -- what are the facts behind where we should go when the law, the Energy Law that was put into place in 2008, comes to sort of what I would call a natural sunset in 2015.

At that point we will have achieved our renewable energy targets.

Do we move forward with that or do we keep them the same?

Energy optimization would be the same.

Retail, open access; we have a hybrid system here, what do we do at that point?

So this is going to be up multiyear process, it will go through the legislature.

I think it is important to note that the administration seems to like what is going on today with our investments.

The Senate, the people that run the Senate and all of the members of the Senate voted for the Energy Law in 2008, every single one of them, and most of the folks on the -- most of the legislature on the House side, almost all of them, have been supportive of the law.

So we are in a pretty good position to continue what we have here, but the key is we need to look at what is beyond 2015 and that is what the focus of these efforts are.

So we will stay tuned, I guess.

Yes, I think that it is going to be a process.

Great.

Thanks so much.

Kevin Cole, Credit Suisse.

Good morning, everyone.

I have a follow-up question to Paul's, actually.

So, I guess I would like to ask a couple of high-level questions just on general resource planning and need for new generation.

And so, I see you have indicated that the system will need a potential of 1,000 to 1,500 megawatts, that is going to be the shortfall in 2015 or 2016 and to meet that shortfall you are going to construct a 700 megawatt gas plant leaving the system roughly 300 to 700 megawatts short.

And so recognizing that your system will at least be tight in that timeframe, how are you and the Commission contemplating the possible early retirement of Palisades in 2017, which I believe is a big resource for you?

Out of state coal plant retirements that could change the general economics of importing power?

And then, I guess separately, do you have any other PPAs that could be subject to early retirement that could further tighten your system?

Yes, that is a great question.

Let me take that.

We have got, first of all the coal plants you are aware, we have got seven small coal plants that we are looking at retiring in '15, '16 timeframe.

That will take out about 1,000 megawatts.

The PPA we talked about, two major PPAs we have.

One is with the MCV and one is with Palisades.

The Palisades question you raised, really you need to talk to Entergy because they are the ones that run Palisades.

We have an agreement with them through 2022.

They are obligated to us that if they do, if they no longer run Palisades, they need to supply power to us someway for two years and then the contract would be eliminated.

And the key is is that what we need to do is find out from them -- you need to find out from them what they are actually going to do about the plant.

But we assume the plant is going to continue to run and will have the power.

Your point is right today.

We have a shortfall in about 2017.

This gas plant will make up for that, part of that gap that we have.

But until 2017 and this is an important piece that will come out in the CON process, we will have an excess of power, a glut of power on the market between now and 2017.

I think you have seen the MISO results recently that talked about nearly 28% overcapacity in the area.

So the timing of the plant is critical as we go forward.

Great, thanks.

And then, I guess, a quick question on the tracker, so, I guess that last week's success by TTE Gas and their capital tracker, I guess the answer is the [ALJ] question.

I guess asserting that the Commission lacks the authority to grant the tracker.

Could you spend a couple of moments just talking about how it you expect that tracker to work, like for example where you get cash recovery in customer builds or will it be the recovery through regulatory assets, what type of CAPEX will be included in that mechanism?

Will that CAPEX need to be preapproved and just [kind of the] duration of the tracker until it resets?

Sure, I would remind you again that this is an upside opportunity that has nothing to do so much with the numbers, but has to do with the process.

So it would provide more certainty, what -- our request was over a two-year period.

It provides more certainty for that recovery over the two-year period and then avoids the need for us to be able to come in for an additional rate case.

So it simplifies the process.

It gives a little more certainty about the results and it gives certainty when I say that not only to you as investors, but to our customers to know exactly what to expect.

So the mechanisms really -- it sounds complicated when you read them, but it is pretty straightforward.

It just says for the second year you project the capital that you would need, we the Commission will review it and authorize it.

You can go ahead and charge for it at the beginning of that second year, self-implement, if you will, but we reserve the right, as they should, to audit what was actually spent to make sure it was spent on the right things and it was the proper amount.

So it gives full authority and full accountability for us to the Commission to ensure that we have done no more than we should, no less than we should, I suppose too, but that we have done the right thing.

It just makes the whole process more efficient and since our rate cases largely are all about capital investment to do things that we are catching up on for our customers and to meet environmental requirements and so on, it just makes for a more effective, efficient process for everybody involved.

There's no magic.

It doesn't make the numbers any bigger, any better, any different.

It just makes the process much more stable and more predictable and more efficient to administer.

So that is the way to think about it and I just want to close the answer on this one with it is an upside, up for all of those things I described.

I still give it less than a 50-50 chance of success, but if it were to happen it would be terrific.

So you are seeing other people get little pieces of it so I think there is a desire to move in this direction and sure, there are people who are nervous about change.

So they will find ways to say what it is not appropriate or not legal or not whatever.

We are not going to do anything or ask for anything that is not fully legal and fully proper to do.

What percentage of CAPEX will be covered in the tracker?

Well, in our proposal for the electric side of the business it would be 100%.

So it wouldn't be cherry picking this piece or that piece, it would say here is your program of your spending for the year.

Like here is your program for the power that you are going to buy and how you are going to do that for a given -- for a year and then, you go ahead and execute that.

And to the extent that something has changed, the rules change, the laws change or something explain that to us because we will have to agree to modifications.

But if you spend what you said you were going to on the things that you said you were going to and you get the sort of performance you said you were going to, then you would have a complete tracker.

But more on that.

I think that is something that will work, too, over time.

I wouldn't expect -- and maybe we will be fortunate in this case, but there's a lot of good important things happening in addition to that.

And do you expect this to be fully litigated or is this -- or do you think you can now get to a settlement?

(multiple speakers).

If you are talking now about the General Electric rate case, I did make some comments earlier.

And you know I was -- we were pleased to see that the Commission scheduled the fact that there would be discussions around a settlement and they followed up.

They lead that effort and they have had some discussions around the settlement, but that is all I can say.

Because, remember, all parties are involved in these sorts of things and it is not our position to say what will or won't happen.

We will announce anything if something were to happen to everybody at the point that it occurs.

If the settlement were to happen, when would it happen?

What would be the time frame?

Well, it can't take too long if it were to happen because you would be deeper into the regular rate case.

So if something were to happen in that arena, now you are asking me for what I am looking around the room giving you my personal estimate.

I would say it is something that would be within the period of a month or even more likely you would see the rate case go through its standard process.

So, again, don't -- we are not foreshadowing anything or trying to raise expectations, but we have been asked about it because it was scheduled and because some word got out about discussions.

It would be a wonderful thing if it happened, but it is nothing that we are planning or counting on.

Great, thank you very much.

Appreciate that.

Paul Ridzon, KeyBanc.

Good morning.

When do you expect capital to start flowing on the gas plant, assuming it gets the approval?

2000 -- little for the capital in 2013, 2014.

2014 is really when it begins to pick up.

Do you have a sense of magnitude in 2014?

Yes, about $100 million.

As it is planned today.

And then you go up beyond that and being you go up to about $350 million and then $250 million to complete it over the three-year period.

So the next two years, very small capital investment.

Okay, thank you very much.

Jonathan Arnold, Deutsche Bank.

Good morning.

Could you maybe just give us an update on where you will sit at coal plants on your coal piles versus normal and what you're seeing versus last year?

Say, in first quarter and also now in terms of dispatch?

We would call it substantial improvement.

We -- you remember we were reporting to you a year ago and I was wringing my hands at that point.

Inventory coal piles were more double the level of what we would have expected them to be and obviously that was a mild winter and that was a lot of switching from coal to gas going on and so the economics were just going crazy.

Well, our supply team did an outstanding job, and I think we talked about this in either the second or the third quarter, working with our suppliers on the rail side and other suppliers to figure out ways to optimize that and to get better economics for our customers and to not have to take so much of the coal that we were scheduled to take, so that we have been able to work those inventory levels down closer to normal levels.

And what helped us get through that, I have to admit, one heck of a hot summer.

If we hadn't had the real heat out there it would have been tougher for us to make that progress.

So I would -- I don't have the exact number in front of me for the inventory level, but I would tell you that we are closer to normal and it is not a worry for us right now.

What I would add is that we are continuing to work with our suppliers on this subject because there's been a fairly permanent shift in the general economics, and so, we will work on the best way to optimize the supply from all of our fuel suppliers but particularly on the coal side.

And, Jonathan, if I could just add one thing to that, what Tom said, just a walkaround number for you.

Anywhere from $2.50 for gas or at $3.00 is where our Western coal, coal units began to be in the money.

So, in other words they are dispatched at or ahead of gas.

So, that has also helped in the first quarter, too, that gas prices are well over that $3.00 level and we are dispatching the coal now as we usually have.

And the team just showed me, so I can share it with you, we are down from over 60 day supply a year ago, down in the 40 day zone which is more the place we like to be.

Okay.

Any data points you can share on capacity factors now versus then, John, or anything like that you have?

Let me see if we have it here.

I think we are up to 60%, 64% kind of year-to-date basis.

And last year we were at 56%.

And that is on the coal plants?

The coal, yes.

Thank you.

And that is kind of a normal run rate, Jonathan.

That tends to be what we normally run.

And on the other side, gas was and now is.

Gas --

Well, the Zealand factor --

That's okay.

The Zealand combined cycle utilization was, if I am reading this right, about 22 in the first quarter.

But you would expect to see that come up a bit as we go through the year.

And how did that compare with Q1 of last year, Tom?

Well, it was higher last year in the 86 level and then 88 in the second quarter.

So you would see a lot of shifting back.

Thanks, that's helpful data points.

Thank you.

Kevin Fallon, SIR Capital Management.

I just wanted to clarify, on the Certificate of Need process, what is the threshold for the MPSE to make the decision?

And in particular are they obligated to consider other plants or is the entire opportunity to cover the net short going forward consumers opportunity?

Yes, first of all it would be dependent on what we submit.

The threshold is over $500 million.

So it has to be a significant investment.

That is one of the thresholds.

The other threshold is the timing that it needs to be completed in less than a year.

I think it's about nine months that it has to be completed.

The key there, though, is that what we get into is that we have to show the need, so what we have to do is submit an integrated resource plan which will show the need in 2017 and then on the second item that we have to look at is is this plant the most competitive for our customers?

I tell you what is nice over the past year or two, it is pretty clear that natural gas is the choice, is the fuel choice in the future.

A few years ago, I think you were familiar, we were thinking about building a coal plant.

That part of it I think will be pretty clear.

But the competitive piece of it, you will see other people intervene in this case that maybe independent power producers today that have gas plants in zone seven, in MISO, that will probably claim that their plants built in the last boom back in 1998 to 1999 are better than our plant built in 2013 or 2014.

So expect that to happen.

That is part of the process.

The reason we go through the process, though, is to get approval for the integrated resource plant, get approval for that -- this plant, the fuel source, the plant is the right one and we get assurances of recovery as long as we stick to what we said we would do on the schedule and the cost.

So you guys would feel pretty comfortable obviously going into that process that your project would be able to provide greater benefits than an alternative?

Absolutely.

As I mentioned earlier, we have a site, we have got almost 300 acres on the site.

Gas is on the site, transmission is on the side, it doesn't require any kind of third-party intervention as far as bringing in costs to that site.

We will have the latest technology today.

It will be a combined cycle plant.

There were a lot of plants that were built in Michigan in the late '90s that were peaking plants so they were simple cycle plants.

So there are those out there.

That is not really what we are looking for here.

This is going to be a baseload unit to pick up in part for what we retire and mothball on the coal side of our fleet.

That's great.

And just one other thing on the slide in the deck of 2013 sensitivities, when we look at the plus or minus 1% change in electric sales that is excluding the E1 tariff sales, correct?

It doesn't matter if it is in or out because there are no margins.

You could answer that question yes and no and still be right.

Terrific.

Thank you very much.

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

Thank you.

Well, let me wrap up today's call by saying we are off to a strong start in 2013 to deliver our 11th year of consistent financial performance.

We appreciate your interest in CMS Energy and look forward to seeing many of you and I think the next conference will be at and look forward to see you at is the AGA Financial Conference in May.

I appreciate your support and we will see you soon.

Thank you.

This concludes today's conference.

We thank everyone for your participation.