CMS能源 (CMS) 2013 Q2 法說會逐字稿

Good morning, everyone, and welcome to the CMS Energy second-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 August 1. 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 is made as of the date hereof and contains forward-looking statements as defined in Rule 3(B)(6) of the Securities Exchange Act of 1934, Rule 175 of the Securities Act of 1933 and relevant legal decisions.

The forward-looking statements are subject to risks and uncertainties.

All forward-looking statements should be considered in the context of the risk and other factors detailed from time to time in CMS Energy's and Consumers Energy's Securities and Exchange Commission filings.

Forward-looking statements should be read in conjunction with forward-looking statements and information and risk factors sections of CMS Energy's and Consumers Energy's Form 10-K for the year ended December 31, 2012, and as updated in subsequent 10-Qs.

CMS Energy's and Consumers Energy's forward-looking statements and information and risk factors sections are incorporated herein by reference, and discuss important factors that could cause CMS Energy's and Consumers Energy's results to differ materially from those anticipated in such statements.

CMS Energy and Consumers Energy undertake no obligation to update any of the information presented herein to reflect facts, events or circumstances after the date hereof.

This presentation also includes non-GAAP measures when describing CMS Energy's results of operations and financial performance.

A reconciliation 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 historical financial results on both a reported generally accepted accounting principles and adjusted or non-GAAP basis, and provides forward-looking guidance on an adjusted 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.

These items have the potential to impact favorably or unfavorably the Company's reported earnings in future periods.

Because the Company is not able to estimate the impact of these matters, the Company is not providing a reconciliation to the comparable future period reported earnings.

Now, I will turn the call over to John.

Thanks, Glenn, and good morning, everyone.

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

We have several announcements to share with you this morning, which Tom and I will cover in detail throughout the 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 we will close, as we typically do, with Q&A.

In the first half of the year, adjusted earnings were $0.83.

That is up $0.06 from last year, or 8%.

This strong first half keeps us on track for our full-year plan and we are reaffirming guidance of $1.63 to $1.66 per share.

Sally Talberg was appointed to the MPSC earlier this month, replacing Commissioner Isiogu, and we look forward to working with her.

Cost-cutting and holding base rate increases below 2% continues to be a strategic focus for us.

Today, I am announcing a number of new cost reduction initiatives that will allow us to avoid our next planned electric and gas base rate increases.

These self-initiated cost reductions allow us to dedicate more resources to improving customer service and reliability, while maintaining our current capital investment plan and our long-term EPS growth rate of 5% to 7%.

More on this in just a minute.

As you know, we have filed a Certificate of Necessity seeking approval for the full recovery of our new baseload gas plant.

In June, MISO approved our application to delay the mothballing of our seven small coal plants until April of 2016.

After these plants are mothballed, market purchases will fill the capacity gap in the short term.

We believe that the right decision is to build a new combined-cycle baseload natural gas plant to come online in 2017.

Given today's environment, this is the right fuel choice and the right technology to serve our customers.

As I mentioned, we have filed the CON and expect approval within nine months.

Approval of the CON provides us certainty to recovery of our investments.

This safeguard is a provision of the 2008 Energy Law.

This new 700-megawatt gas plant is needed for Michigan's energy future and locally will provide 600 construction jobs and other economic benefits.

Michigan's regulatory environment has been constructed under the former Chairman and now outgoing Commissioner Isiogu.

We want to thank him for his commitment to Michigan.

The new Commissioner's prior experience included the 2008 Energy Law, and she has been involved in the Appendix A process, which you know is a data-driven discovery process kicked off by the governor last fall.

Recently, there have been a number of constructive regulatory outcomes that benefit our customers and our business.

Settling the electric rate case for $89 million was a first for us.

Our industrial customers will benefit from lower rates as a result of the elimination of rate skewing.

In June, the Commission issued an order on smart energy.

The proposed opt-out fee was approved.

In addition, the Commission stated once again their approval for full deployment of our smart energy program.

Our Company has been a leader in cost-control initiatives for many years.

Since the 2008 Energy Law, we have filed annual rate cases to recover our capital investments and pass along the O&M cost reductions to our customers.

Avoiding the next planned electric and gas base rate increases is good for our customers and still allows us to continue to invest in needed capital projects.

Cost-cutting initiatives that were implemented several years ago are having a better-than-planned impact.

Capital investments are reducing O&M and we are taking additional steps to reduce costs even further.

Minimizing the impact on customers will allow us to continue our investment program and deliver consistent financial performance in the future.

Even with pushing out the base rate increases, our 10-year $15 billion capital investment plan is unchanged.

Our clean power investments will continue to reduce NOx, SO2, mercury and carbon emissions, while maintaining our balanced energy initiative.

Our capital investments are generally incremental and secure.

We have many investment opportunities to improve customer service and reliability, but none of them are bet-the-company major investments.

For example, our two largest are the $750 million 700-megawatt gas plant and the $750 million smart energy program.

We just received approval to recover our smart energy investment cost, and the approval of the CON will ensure the same for the gas plant.

Should any of these projects encounter delays, we have a backlog of other customer projects that can be accelerated.

As you can see on this slide, our O&M cost would be up 21% over a decade if we maintained costs at the rate of inflation.

Prior to our announcement today, we projected our costs to be down 9%, a good bit below inflation.

As you can see by the green line, we have been able to accelerate and increase the size of our cost reductions, resulting in a cumulative decline of 15% through 2015, a substantial improvement compared with inflation.

Now before I turn the call over to Tom, I want to invite all of you to attend the Investor Day -- our Investor Day in Grand Rapids, Michigan.

It is planned for October 24 of this year and it should be a great event.

Now let me turn the call over to Tom.

Thanks, John.

The investments that you just described deliver important services for our customers and predictable, continued growth for our investors.

Our planned cost reductions are working even better than we anticipated just a few months ago.

These savings have permitted us to avoid our present gas rate case and our next planned electric rate case.

This provides for improved customer rates and reduced investor risk.

Now for the first half, our earnings were $0.83 a share on both a reported and an adjusted basis.

This is $0.06 or 8% better than last year.

Cooler-than-normal weather in the winter and accelerated cost performance in the first quarter provided us with an opportunity to invest in incremental customer reliability and service already in the second quarter.

Actual and projected costs are better than planned.

While recent sales are stronger, we continue to forecast a little conservatively.

We are maintaining EPS guidance at 5% to 7% growth, or $1.63 to $1.66 a share.

As is our past practice, we are reinvesting that stronger-than-planned performance in customer reliability improvements.

So despite some one-time benefits a year ago that did not repeat this year, including recovery of coal plant investments, we have been able to continue our healthy pace of earnings growth.

Now please recall our work last year when we offset fully the adverse implications of unusually mild weather in 2012.

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 put this upside to use by investing substantially more in tree trimming, generating plant maintenance and system hardening.

The benefits are showing up in our present reliability performance during prolonged hot and humid weather.

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

None of this jeopardized delivering another strong year of earnings growth, up 7% from the prior year, the top end of our guidance range.

During the first quarter of this year, favorable-to-plan weather, sales and cost performance provided room to begin more investment in customer reliability.

Continued strong cost performance in the second quarter and recent hot weather are creating even more opportunity.

The good news -- better than planned sales, weather and cost adds up to $0.14 a share.

Hot weather in July may add another 4 pennies, or a favorable profit.

We are already making good use of this strong performance in the second quarter, and we'll do more in the second half to improve reliability.

This also helps avoid both gas and electric base rate increases for at least a year.

One big boost, as you can see here, is the Michigan economy.

It continues to perform well relative to other states.

GDP growth from 2010 to 2012 was 11% in Michigan, the fifth best of any state and substantially higher than the US growth rate at just under 7%.

Several firms have announced that they are shifting manufacturing operations back to the US, mainly to be closer to their customer base and avoid high energy costs overseas.

For the period year-end 2009 through March 2013, Michigan has added 88,000 new workers, topping the list of states, including Texas, Indiana, Ohio and Wisconsin.

Since June 2009, the Michigan economic index is up 74%.

That also compares favorably with other states.

Overall, our industrial customers have had a good recovery, resulting in electric sales at a pace better than surrounding states.

For the period 2010 through 2012, weather-normalized industrial sales in our service territory have improved 18%.

That's substantially higher than the average of US utilities at 7%.

Overall electric sales for that same period are up 4% for us compared with 1% for the average of US utilities.

US electric sales growth has slowed over the last year, and we too have seen slower growth, but still at a pace that we think is a little stronger than most.

Electric sales in the first quarter, without leap year anomalies, were up 1.7%.

The second quarter was down 1.5%, but we witnessed some really odd weather adjustments, particularly in May and June, when the temperatures were high, but customers in Michigan typically would not yet make use of their air-conditioning.

Although sales were slower in the second quarter, we believe our full-year outlook at a growth of about 0.5% is still reasonable and perhaps just a little conservative.

Please also recall that excluding energy optimization, underlying total sales would be up 1.5%, and for industrial, those sales would be up 2.5%.

Now, John mentioned several areas where investment is focused over the next 10 years.

We are fortunate to be able to report a large variety of important smaller programs, rather than a few bet-the-company projects, recognizing our work to keep the overall size of our total investment programs at a pace where base rate increases are still less than inflation.

We are pleased to report that even with our new gas plan, we will be able to keep investment over the next five years under $7 billion.

This provides resources for important customer improvements and a consistent, predictable pace of earnings growth.

Here's a chart we showed you in our last call.

You can see here how our O&M cost reductions compare with our peers.

Specific examples of how we've accomplished this are shown on the right.

You will note that in 2013, we expected our O&M costs to be down 6%, and that's 8% below inflation.

And we projected that over the next five years, costs would be down another percent.

Well, we were wrong.

We now target that our costs in 2013 will be down 8%, or 10% below the level of inflation.

We project that we will be able to reduce our cost an average of 2% a year over the next five years.

Now as John announced today, and as shown on the left, this improved cost performance has permitted us to provide -- or to avoid our 2013 gas rate case.

And as you can see on the right side of this slide, the impact is even bigger.

We have been able to avoid our next annual electric rate case planned for 2014.

The benefit changes that we made over the last 10 years are now bearing substantial fruit.

For example, all new hires, both salary and union, have been participating in a defined contribution pension program, rather than a defined-benefit program.

We've also increased productivity and reduced our workforce by 500 people over the last three years, and more than 1000 over the last six, all of this while employee engagement levels still remain substantially high, in the first quartile.

We've identified further tax savings and we've been able to accelerate our second windfarm, called Cross Winds, to enable us to participate in the federal production tax credit program.

Also, our employees have been sharing in the cost of healthcare for some time.

Similar sharing in our retiree healthcare program adds to cost savings.

Just the improvements in these few areas have fully covered rates that would have been required to support our new electric and gas capital investments for 2014, eliminating the need to ask for new base rate increases and cases.

We do not anticipate needing additional recovery until a 2015 test year.

As you can see here, instead of increasing our electric base rates by something less than 2%, we now expect to hold them flat through 2014.

We don't anticipate any change in our return on equity at 10.3%, and we do not expect any risk that would jeopardize future earnings and cash flow growth at 5% to 7% a year.

We are asking our Public Service Commission to help us enable some of these cost and rate savings, including the Certificate of Necessity to build a new low-cost gas plant to replace higher-cost small coal plants.

We will request an accounting letter to permit sharing of tax benefits associated with older, vintage assets.

We will also request authorization to securitize remaining costs associated with the small coal plants that will be retired.

There may be even more opportunities as Michigan reviews its 2008 Energy Law.

We've worked hard to sustain continuous improvements to our cost structure and the quality of our balance sheet, which recently resulted in upgrades by both S&P and Moody's for CMS and Consumers.

Even these improvements provided new cost savings, including $2 million this year associated with financing costs and revolver fees.

And we expect this annual savings to grow to about $8 million a year.

Now, as always, here is our earnings and cash flow sensitivities chart to help you assess the outlook.

We believe our projections are well-balanced and that they minimize risk.

We are on track to meet all of our financial targets for 2013.

And as mentioned in our last quarterly call, fortunate to have a little room to move.

This should be our 11th year in a row of industry-leading profit, cash flow and dividend growth.

We do hope you will be able to join us on October 24 for the Investor Day in Grand Rapids, Michigan.

We have arranged to have our Public Service Commissioners available to chat with you, a chance to visit our two-gigawatt pumped storage operation in Ludington, where substantial upgrades are underway, and to meet our team to talk about the capital investment programs ahead over the next 10 years.

So thank you for your attention today on what we know is usually a very busy day of earnings calls.

We appreciate and deeply value your interest and your support, and John and I would be delighted to take your questions at this time.

So operator, would you please open the call for questions?

(Operator Instructions).

Kevin Cole, Credit Suisse.

Good morning, gentlemen.

Congrats on the [sale].

Just to dig into, I guess, the moving pieces a little bit, so on slide 20, am I reading it correctly that you expect O&M to fall through 2017, and so the 2015 rate case would just be capital-driven?

I think the simple answer to that is yes.

In fact, there's other pieces -- obviously, there's revenue pieces to the rate case, there could be ROE pieces to the rate case, although we don't expect that.

But as we drive our O&M down, we will have our new capital investment requirements, and we suspect that whatever they are, we will be able to offset that a little bit in our request for rate relief.

And then, Tom, is it possible during the [stayout] between now and 2015 or, during the 2015, I guess, legislation review, that you can seek either capital trackers on environmental CapEx or on the new gas plant that could enable you to stay out even further?

Well, to get a tracker mechanism in place as you've described it would require a rate case.

So that's the sort of thing that we will talk about with the next rate case.

But I'm sure there will be lots of dialogue around things like that over the course of the next year, as people look at what's the right legislative model and what's the right regulatory model.

So there will be lots of discussion, lots of progress, but the implementation would be through a rate case.

Okay.

Then last question, just so I have the timing right.

So with the stayout, are you expecting to file in mid-2014 with self-implementation 1/1/15, or to file in 2015?

Now we haven't actually announced what those dates would be, but if you let me characterize it just a little loosely -- and gas and electric could be slightly different, but I would expect we do something in the summer of 2014.

Self-implementation would certainly be towards the very back end of 2014, if not the early part of 2015.

But I must say the progress we are making on the cost side of the ledger is so strong, we will be looking at that carefully, but we wouldn't want to tell you that we could wait beyond a 2015 test year.

Okay.

Sorry, one last question.

What are your volume assumptions for 2014?

What we show is our growth kind of at a modest level.

We will plan over the period about 0.5% to 1% for electric weather-adjusted rate growth.

And I think if you see something like that in 2014, you shouldn't be surprised.

Great, thank you very much.

Jonathan Arnold, Deutsche Bank.

Good morning, guys.

A quick question on the cost saving.

John, you mentioned that you had -- some of this was outperformance on -- when you talk to slide 10, this is, where you showed the kind of 9% reduction on the prior plan, and now you think it's more like 15%, you said some of this is outperformance on existing programs and some of it is the new initiatives.

I was wondering if you could just give a bit more color on how much of -- how much are you counting on for the new reductions and how much of those are things that are actually basically in the bag, and how much do you still have to implement.

Yes, I think Tom showed you on his slide the detail behind it, Jonathan.

One of the things that I guess surprised us -- pleasantly surprised us a little bit is we have been aggressively cutting costs for many years now.

And many of these legacy cost changes we made, particularly with the union in two contracts ago, are paying dividends today.

We are seeing the benefit of that.

But also several years ago, we started an initiative which -- and just if you can bear with me a minute, I will tell you how we've really gotten here -- we focused on improving safety, which we thought safety was the root of getting to the end on making us a successful Company.

If we can't do it safe, we shouldn't be doing it.

We have been able to move from fourth to first quartile in safety.

After we did safety, the other focus we had is to ensure we have higher productivity.

So we have been able to move from productivity of about -- when we started measuring it -- up about 40%, 50% over the past five years.

And as Tom mentioned in his comments, which I think is important, our employee engagement is also now first quartile.

So what we have been able to do is reduce costs, capture the productivity, the safety and the performance of our employees, with the engagement.

And what it is helping us to is reduce costs and serve customers better than what we expected by this timeframe.

So that's what's really driving this piece of it.

But I'll tell you the one thing that surprised us most is the continuation of the employees who are retiring with the legacy benefits compared to the new hires that we have that have some of the pay-as-you-go benefits, which has helped us substantially.

If I might just add, I'd say that to your question about what's in the bag, we never like to say that the hard work we are doing is all in the bag.

The operating guys would hang me if I said that.

But I am going to go ahead and say it anyhow.

Because what we are doing, a lot of it is already behind us, the way John just described it.

And a lot of what's in front of us, we control it.

It's things that we do.

So from that sense, they are in the bag.

There are a couple things we do need help on.

So one of the savings will be the securitization, so we will request the Commission's help on a securitization.

We will make that request in September.

So we need their support on that.

We do have the CON in place, which is good economics for our customers, so we need their support on that.

And then lastly, we do need an accounting order.

It's almost a technicality, but it saves money for customers, so we are hopeful they will see that as a very positive thing as well.

So there's a few things that we need some support on that aren't completely in our control, but most of this, we control it, we are doing it.

So a CFO calls it in the bag, even though there's a lot of work to do.

Thank you, Tom.

Could you just -- can you put a number around the securitization perhaps?

Yes, that savings will be about $20 million to customers, and that won't kick in until probably around 2015.

The reason for that is this is all provided for in laws put in place 10 years ago, and it takes about 90 days for the Commission to review if they think it's the right thing to do, and then we provide time for appeals, so all parties can participate in something like this and ask questions.

We assume that process could take as long as into 2014.

And if it does, therefore, we plan the benefits for our customers in 2015.

If it happens earlier, that's great, but that's our plan.

The $20 million would be the savings, but how much would you be securitizing roughly?

Yes, we'd be securitizing in round numbers, $400 million, and the annual savings would be about $20 million.

Great, thank you very much.

Greg Gordon, ISI Group.

Good morning, guys.

A question on your nonregulated businesses.

I know you still have an ownership interest in the DIG gas plant.

Can you talk about some of the actions you took over the course of the first half to try to increase profitability of that plant?

My understanding is that you actually bid some of that plant into the PJM auction.

Yes, it's a good question.

We are actually being very patient with our operation at the Dearborn industrial generation facility.

They run well, they do a good job, but as you know in the capacity market that we have in MISO, if you want to call it that, the capacity prices are very low.

We believe they will come back up.

Lots of debate over the pace and the magnitude.

But what we don't want to do is lock in for the long term lower prices.

So what we are doing is short-term contracts, and we are looking at things like, to your point, PJM.

We look to taking one of our units there and bidding that into PJM.

And I think that most people were disappointed with the prices that came out of that bid for three years from now for everybody, but they are still better than what we are getting in MISO today.

So we will have some decisions ahead as to whether we stay with that market for three years from now, or whether we sell that off to a counterparty.

We will have opportunities on that decision.

But the way to think about our plant there, short-term contracts, well-run.

As prices start to come back up, we will start to layer in, like a cake, different contracts to take us out over a period of time.

And we will do longer periods as the prices are a little bit better.

DIG has been a good contributor to us in the past.

It is still a small but good contributor today.

I think it will be a larger contributor in the future.

Great.

One last question.

I know it's not your service territory, but do you see any knock-on effects in terms of economic impacts of the Detroit bankruptcy in your service territory?

No, I don't, Greg.

I mean, that's something -- you know we don't serve that area, but it's a very important for Michigan as a state to have Detroit issue settled.

So from that standpoint alone, certainly been a lot of media attention related to it.

But I think they are on the path, albeit difficult, for success to move through some of the difficult things.

So I see it in the long term as a benefit, and short term, it doesn't affect us.

I think you will get some good insights tomorrow, I believe, when DTE does their call.

They clearly are closer to it and do a lot of good work there.

Thank you, guys.

Paul Patterson, Glenrock.

Good morning, guys.

How are you?

Just to circle back on page 20, I mean, were all these -- how much of this had to do with any new initiatives that you actually took in place, versus, I mean, they were just better than expected?

Page 20 is a good one to look at.

If you look at what's up in the top of that page, those are all things we plan to do, and they either are well underway or you could consider them like good plans.

If you look at what's called additional cost controls, that's where you'll see some of the things we are able to do to avoid our rate cases coming up, and therefore keep our base rates flat.

And so when you look at that -- I'll just quickly highlight them.

The low-cost financing I talked about, while it was kind of in the plan, but we didn't expect it to bear as much fruit.

The Cross Winds was -- and the way you should think about that, there's a lot of advantages in what we did here, but the simple one is we moved quicker to make sure we get the PTC.

If we had gone a little slower, we might have risked getting the PTC.

So that's a little extra plus that we picked up in our plan.

Tax benefits, those are just simply doing some things that we hadn't intended to do before to pass on some tax benefits to our customers, and we didn't have them in our plan before.

So that is where we are going to add --

Can you give me -- is that the $70 million?

Could you give me an idea of what kind of stuff that would be?

Yes, it's really simple -- well, it's actually extremely complicated.

But I will try to make it very simple.

It has to do with cost of removal.

And since 1993, we have been doing a form of accounting that just flowed all the benefits through to our customers.

Prior to that -- so all the plants that were in place prior to that that had cost of removal being collected over time, which we still collect -- the tax benefit hasn't been flowing through to our customers, and we are proposing to do that.

That's just doing the accounting a little bit differently and helping our customers out for what we call those vintage plants.

So that's a really good idea (multiple speakers).

So you are collecting the money now, but you are passing the tax benefit on to customers.

Does that have an impact on earnings or -- I mean --?

Well, no, technically, that gives us an earnings benefit that was hung up on the balance sheet, which helps you offset the earnings impact of giving this money back to customers on a faster pace.

And then on a cash flow standpoint, it's a negative cash flow for the Company.

It's positive for the customers, but we have other cash flow items that have offset all of that, so they neatly tuck together.

And then the last one (multiple speakers).

No, go ahead.

I'm sorry.

The healthcare benefits.

Yes, I was going to go to that.

The retiree health -- go ahead.

Well, is that one of these things where you are going to be changing the healthcare benefits that are currently -- in the current plan, you are going to be changing them, and therefore there's going to be an accounting benefit recognizing the net present value benefit of the long-term impact?

Exactly.

But what I will add to that, because you described it quite well, we have a nice program today that we've been doing over a decade of sharing our active premiums between employees paying a little bit and the Company pays a little bit.

We were not fully doing that kind of thing for retiree healthcare, so we are just easing into that in a very gradual way.

But you described it -- by thinking about the benefit to the Company of that and to our customers of that over the long period of retirement, it adds up to quite a big number that you see here.

So you described it correctly.

I just want to color it to understand we are just sort of feathering that in slowly, in a way that, just like our active employees share in the premiums today, they will share in the retiree healthcare wraparound of Medicare.

Okay, great.

I appreciate it.

Ali Agha, SunTrust.

Thank you, good morning.

John or Tom, I wanted to be clear on a point you made about the delay in the rate case, and the help that you need from the regulators for securitization, tax, benefit sharing, et cetera.

Just to be clear, if for whatever reason that does not come through, does that cause you to accelerate the timing of the rate case?

Or I just want to understand the link between that and the timing.

Let me take the three pieces individually so that -- because they are not all the same.

On securitization, we assume the benefits in 2015.

So we think that is a pretty standard process and that will work fine.

If it didn't, that would not impact what we've just told you about rate cases for 2014.

It would not.

And then on the Certificate of Need for our new plant, the way you should think about that, we are very optimistic that we have the right proposal, that it will be approved, but let's assume it weren't.

If for some reason we are turned down then we would not build that plant.

But as you know -- John described it pretty well this morning -- we have so much investment that's sitting out beyond this period, we will be able to pull some of that customer investment in and replace that.

So what I would say is that from an earnings and cash flow standpoint, that wouldn't really have a big impact.

But it would be disappointing because it wouldn't provide the best operations for our customers.

Then I would say on the tax case, if on that one -- we believe that's a pretty easy one to do, but I don't want to speak for the Commission.

It's an opportunity to reduce rates as we go forward for our customers.

So to get that accounting order should be fairly simple to do.

But if for some reason it was concluded that it would not be done, then we would relook at our rate cases, and we probably would file an electric and a gas rate case sooner than we described today.

I don't anticipate that.

I've kind of gone way over to the negative weeds to describe to you what would happen.

I think we are on a good course.

I believe the Commission will -- I don't want to speak for them, but I believe they will see the large benefits of these things and support the Company's proposal.

We will see how that plays out.

We will know that one over the next month or two at most.

And if we do fail, we will revise our plan to file for rate cases.

But I'm optimistic that we won't fail.

Okay.

And also related to that, I believe you have -- you mentioned electric load growth, weather-normalized on (technical difficulty) is what you would look at.

For some reason if it again slowed down, was flat to even perhaps negative, would that also cause you to rethink the timing?

No.

Okay.

And then last question, on the CON, some folks have suggested that there may be excessive capacity out there, IPP capacity that could be used.

Any sense on how strong of a case that is?

Yes, I think what you are going to see is that there will be people that will intervene in the case.

And there's some excess capacity in Michigan that you know of today.

And I think what you are going to see is other people will try to make a case that their plants are better to be purchased by us or a long-term contract from us than what the Thetford plant that we are proposing is.

I will tell you from my standpoint right now, the plant that we are proposing has the best technology, has the best site, it currently has all the infrastructure in place to move forward.

It creates the jobs in a rather depressed area.

I think that's a benefit for everybody from that standpoint.

But I will tell you the one thing we will not do, if the CON is not approved, we will not go forward.

And the second issue is we will not move forward with a long-term power purchase agreement.

That's not in the best interest of our customers.

Our customers are paying for those long-term PPAs that we have today.

And the reason they are paying for it is that we don't have any flexibility with these long-term contracts while market prices decline or capacity prices are low.

So I expect this to be a pretty hotly-debated CON process.

And what we will end up at the end of the day is doing what's best for our customers.

I'm glad you asked the question.

That's something that I wanted to make sure everybody understood.

Got it.

And so if not long-term PPA, then you'd look for short-term options in that scenario?

Exactly.

Yes, short-term would be the case -- or a purchase.

If somebody -- if a plant is out there that's potentially better than our plant, which I can't imagine that, but if it is, we would certainly look at that from a purchase standpoint.

Understood.

Thank you.

Leslie Rich, JPMorgan.

I wondered if you could just comment on the decline in residential and commercial sales on a weather-adjusted basis, what you are seeing there?

I think we are still seeing what I would call the recovery pattern.

So the industrials had a nice resurgence, and now is building on really tough comps, because they have completely recovered from the recession, and they are doing pretty well.

And we follow that carefully because that to us is our leading indicator for residential and commercial.

So just like they followed industrial down into the recession, they still are following, slowly, the industrial growth out of the recession.

So there's two things to consider there.

I think the residential will come back first, and then the commercial will follow.

We are seeing lots of seeds of people who are living together -- either families, kids with their families, adult kids, or whatever -- we are seeing them began to branch out.

And you see that through the housing stock.

People are now moving into homes that were vacant and people are now building and people are now moving upmarket a little bit.

All those are good signs.

So I think we are going to see residential do better as we go through time, and then commercial will follow.

The commercial folks are very sensitive to the recession, and they are even more cautious than industrial in doubling down.

The second point I want to make sure is clear is that to see the real economic difference, take on an annual basis those numbers and add just a touch over a percent for energy optimization.

We are tracking that information very carefully, because we are actually helping people get there.

So both the residential and the commercial are doing a pretty good job.

So if you add that back, you see the real economic growth, even though you do need to look at the net number, obviously.

So that's pretty much what we see, and I just don't want to be overly optimistic about the pace of their recovery.

But the industrial side is what drives it.

That's what brings the jobs in, adds the confidence back, and then you see the housing starts.

I suppose I should say one other thing.

As is typical with every long recession -- that I haven't heard people talk about much -- but we are going to see it in Michigan and other people may see it as well.

Resurgence in housing gets delayed, because the people that worked in housing retired for good or went off and did other things.

And it's amazing -- you'd think with unemployment, you'd fill those holes right away; you don't.

The talented trades and people that are needed to bring the housing industry back take a while to retrain and obtain.

So I think we are also seeing that lag in Michigan -- I'm not sure about the rest of the country -- as people begin to come back into that.

The right kind of talent, the right kind of plumbers and carpenters and electricians, the people that can't just walk into it from doing an unrelated job.

So that's impacting it a little bit too.

So we are cautious and we think things are going to stay -- they are going to improve very gradually.

Okay, thank you.

No, thank you for the question.

Ashar Khan, Visium.

Good morning and a good presentation.

Tom, if I -- based on your comments in terms of certainty through an accounting order in the month or two months, and without now having rate cases next year -- can we expect that when we come down to Grand Rapids in the fall that we could get guidance for next year?

Well, I wouldn't project what we are going to say on October 24 at this point.

But I'll tell you what I can do today -- I can tell you that our long-term guidance continues to be 5% to 7%.

But yes, I don't want to tell you we are going to give you new guidance for 2014.

But I can tell you I think you are going to see a lot of nice eye-opener things about the sorts of investments we are doing for our customers and how the team manages that and why we are so confident in what we are doing.

You are also going to see a lot about our O&M programs, the new ones we just did.

And you can see it again there -- judge for yourselves -- why we are so confident that we can offset these rate cases and actually limit the size of future rate cases, because our O&M is funding a lot of the capital side.

So you'll get to see a lot of the detail there, and I hope a lot of people can make it because those that haven't seen a big pumped storage station I think will be tickled to see the size and the beauty of the operation that is there, as well as the major upgrade that's underway.

So that will be pretty exciting.

And the other nice thing when you come to this, and I hope everyone does, we hope to have all three commissioners there so that you can independently ask them of us your questions about Appendix A and about our ability to push off these rate cases, and why that makes sense or not to them.

And they will give you their own opinions and their own views, which I think is a really healthy thing to do.

So there will be a lot going on and I hope you can make it.

Okay, thank you.

Thank you, there are no further questions.

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

All right, thank you.

Let me close today by saying the first half of the year has us on track to deliver our 11th year of consecutive financial performance.

And as Tom was just mentioning, we appreciate your interest in CMS Energy and we really hope you can join us in Grand Rapids.

A couple comments just in addition to what Tom said.

The Ludington pumped storage facility as we know it right now is the fourth largest in the world.

So it is something to really see if you have the opportunity.

And one of the questions came up about the city of Detroit and the bankruptcy.

If you have never been to Grand Rapids, which is the largest city we serve, it would be a good opportunity to see that city and kind of the vibrant nature of that city compared to the east side of the state.

Seeing the commissioners I think will be a great opportunity for you.

And I also want you to be able to interact with the management team, which we will have the full management team there.

So a good opportunity to ask questions of us, ask questions of the regulators and see how we make this operation run.

So with that, I appreciate your interest and thank you for joining us today.

This concludes today's conference.

We thank everyone for your participation.